Balance transfer is a scheme that saves you from paying extra interest on your outstanding balance. It helps you to clear your debts in a much faster and efficient way, when you have your interest rates holding you from clearing your credit card balances. It is a process that takes place between two banks or credit card agencies and you. Your previous account with a bank or a credit card company will be transferred to a new credit card company or a bank account, with all your outstanding balances.
In lieu of your old bank, you will be making payments to your new bank after the balance transfer. You might ask where the benefit lies in here for you. The offer that the new bank receiving your balance makes is that you get an interest free period from six months to a year, depending on the bank you choose. The biggest benefit of this interest free period is that any payment you make towards your credit card, will go only to clear your debts and not towards the interest rates.
There are a few things to consider before you jump into a balance transfer scheme to clear off your debts. Since there are a thousand credit card companies offering this scheme, take your time to choose the card wisely. If you are getting an offer of six months interest free period, then search for companies that can give you a complete year of balance free period.
Negotiating with your new bank can also be a great idea here, since your old bank will be at loss, if you go forward with that scheme. Also, one important thing you must know about balance transfers is that, closing your old bank account can cause your credit scores to go low from what it is already. So talk to your bank about the offer you have about balance transfer and see if you can get the same facility from your old bank. This will help save a lot of time and paper work and will also help you improve your credit score without further decreasing them.
There are of course other factors to consider when you opt for balance transfer. The interest rates after the specified period can be really high and also, you cannot use your balance transfer card to make any new purchases. The zero percent interest will not hold good for your new purchases. With a little careful consideration, it is a great scheme to get rid of your debt.