Save Thousands On Debt With Balance Transfer Credit Cards

Do you have a credit card balance that you’re finding challenging to repay? You can go for a balance transfer on your credit card. It is a strategic financial move to manage your existing card balance.

Here, you pay off the outstanding balance for an old, high-interest credit card using the balance transfer facility on another card with a balance transfer facility. Usually, this facility has a 0% interest fee and a nominal one-time processing fee (subject to the bank’s internal policies).

How Does Balance Transfer Work: A Case-Based Scenario

Aamir has an outstanding balance of AED 20,000 on a credit card that charges 3.25% interest per month. He applies for a balance transfer on another card that offers 0% interest for 12 months with a 1% processing fee.

Once he got approved for balance transfer, the bank settled the AED 20,000 balance with the previous card issuer. Aamir now repays the transferred amount in fixed instalments of around AED 1,667 along with a one-time processing fee of AED 200.

This way, he avoids paying thousands of Dirhams in interest that would have accumulated on the original card.

How Does a Balance Transfer Help You Save Money?

The biggest financial advantage of balance transfer is that you reduce the amount you pay as interest.

If you have existing credit card charges at a high interest rate, a balance transfer facility with a lower or 0% interest rate reduces your principal balance over time, instead of accruing additional interest.

With time, it shortens your repayment journey, improves cash flow, and makes budgeting easier.

Lower Interest Rates

Most balance transfer credit cards offer a low interest rate or 0% interest for a span of 12 to 24 months. During this time, you don’t get any new interest charges on your transferred balance.

So once the balance is transferred, you only need to pay the principal amount, which makes getting out of debt achievable.

Debt Gets Structured

With a balance transfer facility, you consolidate your credit card debt. Instead of multiple card bills, you make one monthly payment. You have a single due date to pay off the balance. It reduces the chances of missing payment and incurring late charges.

Insider’s Advice: A balance transfer facility is beneficial only if your interest is more than the processing fee and you repay the transferred amount within the pre-defined tenure. Otherwise, standard interest rates may apply to any remaining balance.  

Flexible Repayment Tenures

Most banks allow you to convert the transferred amount into an easy payment plan with tenures ranging from 12 to 24 months.

How to Get the Most from a Balance Transfer Facility on Credit Card?

To make the most of balance transfer and maximise your savings,

1. Transfer only high-interest debt
2. Choose a tenure that suits your repayment plan
3. Calculate if the processing fee is lower than the interest you would need to pay otherwise
4. Avoid making any new purchases on balance transfer credit card, unless necessary
5. Set up automatic debits so that you don’t miss the due dates
6. Try to repay the entire transferred amount in the set tenure

Who Should Consider a Balance Transfer?

Balance transfer is suitable for borrowers who have high credit card interest rates on multiple cards and need a clear repayment strategy. It can be especially useful if you:

1. Large outstanding balance on a high interest credit card
2. Plan on consolidating multiple card payments into a single monthly repayment
3. Expect to receive a stable income over the repayment period
4. Can repay the transferred amount within the pre-defined timeframe

In other words, balance transfer is ideal for disciplined borrowers who can reduce their borrowing costs and streamline their debt.

Is Balance Transfer Right for You?

While the balance transfer facility sounds strategic, it is not for everyone. You need to meet the following criteria to opt for this facility:

1. Have an excellent credit score
2. Capacity to repay the entire transferred amount within the selected duration
3. You qualify for a high credit limit to transfer the major portion of your debt

If your credit score is not solid or you cannot commit to a repayment plan, avoid using this approach. It only makes sense when you have a strong repayment capacity.

Final Thoughts

Since balance transfer can vary by banks in terms of processing fees and repayment options, you should compare multiple cards before making a final decision. Use platforms like Paisabazaar.ae to analyse balance transfer credit cards and find an option that aligns with your needs.

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