Balance transfer involves transferring your outstanding balance from a credit card or unsecured revolving credit account (let us call it Bank A) to another credit card owned by you (let us call this Bank B) with a different financial institution. In other words, the amount owed is consolidated at account B, and you receive a monthly statement indicating the amount repayment required for the total outstanding in account B.

If you are rolling forward a lot of credit card debt, take advantage of the plethora of balance transfer programmes that are offering very low interest charges compared with normal rollover interest rates of 24 per cent per annum, and you could use that money saved for your next holiday!

Policies on balance transfer credit cards vary from each bank, which may have different rules for managing a balance transfer transaction. To protect yourself, find out what it will cost you to make a balance transfer before you initiate the transfer. Read and understand the fine print and ask your credit card issuer about any charges involved before you sign up for such a balance transfer facility.

The key to saving money with balance transfer is to do it smartly and in a responsible manner. Below are some important points to keep in mind.

Key figures to look out for

Most balance transfer programmes offer low introductory interest rates, which usually apply for a limited period. After that, the interest rate will revert to 24 per cent a year for most credit cards and between 12 and 16 per cent a year for unsecured revolving credit.

Before signing on the dotted line, keep in mind these three important questions: what is the interest rate you are getting; how long will the promotional interest rate be valid?; at what rate will your outstanding balance (if any) be charged once the promotional rate has ended?

Using your banking relationship with Bank A and Bank B as explained above, some other questions that you should also get answers for are: Does either Bank A and/or Bank B charge you a fee for transferring your outstanding balance ? If there is a fee, is it a flat processing fee or will it be calculated based on a percentage? Does Bank A charge you another fee for terminating your account with them? Does Bank B combine the outstanding balance that was transferred from Bank A into your existing credit card account with them? Or is a separate account created for the outstanding balance transferred? If you decide to roll over the outstanding balance that was transferred to Bank B, does Bank B levy an interest on the purchases you make on your normal credit card? Will Bank A notify you when they have received funds from Bank B to repay your account? Will Bank B notify you when the funds have been transferred to Bank A? Under what circumstances can the new credit card company change the introductory rate it gives you for your balance transfer ?

Plan to pay back

Minimum monthly payments are just that. They are the smallest amounts that you need to repay monthly to maintain good credit standing. If no repayment is made, outstanding balances can build up so quickly that you may end up overstretching your budget.

While balance transfers may be a cheaper solution to re-financing your debt commitments in the short term, they are not a long-term strategy. The principal amount remains unpaid, and the promotional rate will end. So it is good to explore all other options before you embark on a credit card financing scheme.

In conclusion, always spend within your budget and do not be easily lured by available credit . Spending on credit is spending on future money. We do not know what the future holds, so be prudent with your money. Your banker is here to help. If you face problems in paying off your debts, approach your banker for assistance in debt management before your financial position worsens.

 

 

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