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Research: Make the most of your money by opting for balance transfers -

Balance transfer is a financial benefit that all financial institutes and banks offer to attract customers. The basic principle is that when a person takes a loan from a bank he makes an assurance to repay the balances on time, along with a certain amount of interest that the bank might charge on the loan amount. This interest rate varies from banks to banks. In order to attract new customers the banks offer a scheme in which a borrower can transfer their balance amount that would not cost customers, an arm and a leg. Banks use the "interest free balance transfer" ploy, to rake in new customers. In this way, the customer gets to save money from paying interests and the bank earns a new customer.

How does balance transfer work?

When the customer signs up for the interest free transfer, there is no interest levied on the amount that has been transferred till the promotional period expires. For example, if the balance transfer of a customer has been made the promotional rate for six months, then the customer is not entitled to pay interest on that amount for the next six months. Once the promotional offer ends, the regular balance transfer interest rate will be charged on the remaining loan amount.

The consumer may have to sacrifice the promotional offer if he/she makes a late payment, has a payment returned or gets their cheque bounced or exceeds the available credit limit during the promotional offer. In such a case the 0 percent offer is rolled back, and the normal APR gets applied to the outstanding balance. This default rate will be much higher than the normal interest rate and will cause the original amount to increase due to the interest rate.

The other case when one may not acquire a full benefit from the promotional offer of  0% balance transfer  is when the customer transfers the balance that to a credit card account that already has a balance or makes over the limit  purchases on the  credit card. This will call for above-minimum payments that will get applied to the credit card balance and will incur the highest interest rate.

So a customer can benefit from the introductory offer of 0% balance transfer only when he is able to pay back the loan amount within the grace period granted for 0 on balance transfer. In this way, the user can dodge past paying interest rates on the balance transfer. Secondly make sure that the customer avoids making any further purchases on the credit card until the balance transfer gets completely repaid.

Points to be careful of

While it is true that balance transfers can make life simpler in terms of finances, it is important to choose the right card to get expected results. Ensure you consider all the critical factors that impact your debt, and make a well informed choice.