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World of banking has evolved stupendously today. Credit cards which are ubiquitous nowadays are an important and active part of that evolution. The facilities that a common man can avail using a credit card are copious. Attractive schemes and incentives that banks and credit card companies offer a common man make credit cards hard to resist. With credit cards come the debt and the payment procedures which can be a challenge during the times of economic recession. There are some schemes that are designed to help both the customer and the company during such times. balance transfers are one of them.

Balance transfer is a process where an outstanding balance in one account is transferred to another existing or a new account. Balance transfers are offered by all companies that provide credit cards.

So how do balance transfers work? Though, it is always advisable to pay off the credit card bills every month, during the times of economic recessions, it is difficult for some of us. It is at times like these, the credit card companies look forward to improve their customer base. Under the balance transfer scheme, credit card companies will offer to clear all the outstanding balance of the old card and transfer the same to the new card they provide. For instance, if a customer has an outstanding balance of Rs.5000/- on a credit card, the new credit card company will clear that amount under the balance transfer scheme and the new credit card that they provide to the customer will have an outstanding balance of Rs.5000/-.

Credit card companies use this offer to make new customers and customers can benefit from the low interest rates. Suppose the old credit card company charges an interest rate of 30%, then for Rs.5000/-, we would be paying an additional amount of Rs.1500/- only as interest. Often zero percent interest is charged for a period of six to twelve months where a customer can pay off just the outstanding balance amount without worrying about the sky high interest rates.

Here are a few things about balance transfers, one has to consider before making a prudent decision.

Advantages:

- Easy on interest rates, this scheme helps in saving up and clearing debt faster.

- All monthly payments of the credit card will be utilized to clear off the outstanding balance rather than interest rates.

- Zero interest rates for a period of six to twelve months can make managing large amount of debts an easier task.

Disadvantages:

- The low interest rates are applicable only to the outstanding balance. This means, any new purchase made using the new card will not be free from very high interest rates.

- The offer can be revoked if there is a slight delay in monthly payment and the high interest rates will be charged back on the outstanding balance.

- Scheme works well only when the new card is used only to clear off the old debt and not for any new purchase. This means if the card is used in times of emergency, the debt can only be accumulated further.

Balance transfers like any other scheme, has both pros and cons. One has to weigh them carefully and choose the best option to make the most of it during the economic downturn.