Credit Card Bill: Nowadays, credit cards have become a necessity for many people. Even if you don’t have cash on hand, you can easily shop with a credit card and often enjoy better discounts in the process. However, every purchase made with a credit card is essentially a loan that must be paid back within the grace period. If you pay back the amount within this period, no interest is charged. But if you miss the deadline, high interest charges apply.
This is where the risk of falling into the debt trap begins. If you are one of them and are having trouble paying off a large credit card bill, a balance transfer could be a useful solution. This method can prevent you from getting into even more debt, but it requires you to have more than one credit card. Let’s explain what a credit card balance transfer is, when it is beneficial, and when it could pose a risk.
What is a balance transfer?
A balance transfer allows you to pay your credit card bill by transferring the outstanding balance to another credit card. For this, the second card must have a sufficient credit limit as you can only transfer up to 75% of the available limit. The bank facilitating the balance transfer usually charges a processing fee and GST for this service.
Benefits of a credit card balance transfer
The main benefit of a balance transfer is that it allows you to pay off the balance on one card with another card, giving you a new grace period to pay off the debt. If you pay off the amount within this new grace period, you won’t incur any interest. This helps you avoid becoming a defaulter, protecting your credit score from a negative impact.
How to make a balance transfer
There are two ways to initiate a balance transfer. The first method is to call your bank’s customer service to request the transfer. The second option is to use your bank’s app or website to transfer the balance yourself. You’ll need the details for both cards and you can choose to repay the balance in a single payment or through monthly installments.
When a balance transfer can become a problem
Sometimes it’s not a problem to use a balance transfer, but resorting to this method frequently can negatively affect your credit score. Also, if you don’t pay off the transferred balance within the new grace period, you risk falling back into the debt trap. This is because credit card interest rates are high and are calculated on the basis of compound interest, which makes it easy for debt to grow quickly.
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