Understanding balance transfer scheme


Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » Research » Guides » Balance Transfer Cards » Understanding balance transfer scheme

Understanding balance transfer scheme

The content is accurate at the time of publication and is subject to change.
Credit card debts have become increasingly common due to the economic fluctuations and recessions. Many schemes have therefore been developed to help people recover from debts and to pay the credit card companies. Balance transfer is a scheme that helps the individual recover from debt, by reducing the interest rate that is applied to the outstanding balance. The scheme works as follows: Transfer of balance: If the individual in debt applies for a balance transfer, then the outstanding balance from the old credit card is transferred onto a new credit card which the company offers. The outstanding amount on the new credit card will now reflect the amount due on the old credit card, and the old credit card will be cancelled. The offer: The offer for the balance transfer is that the total amount due is absolutely free of any interest rates for up to 12 months. The individual trying to pay off the balance due can do so without any worries about extra costs resulting from higher interest rates. The zero-interest period ensures that any payments made towards the credit card will be used to pay the actual debt, and not the amount resulting from the interest. The Catch: The catch in the balance transfer offer is that the interest rates after the 12 month period will be higher than usual. Any new purchases made from the new credit card cannot be paid until the old outstanding balance is taken care of first. This means that the new purchases made will keep accumulating the interest rates until they can be paid. The balance transfer credit card must not be used for new purchases for this very reason. Once the balance is paid, then the card can be used accordingly. Even if the entire balance cannot be paid within the zero-interest period, the outstanding balance after the interest free period will be charged a very high interest rate. Fees and other charges: The old credit card company may charge a process fee for the balance transfer onto a new credit card. Additionally, the credit card company offering the balance transfer may charge a one-time processing fee. There may be hidden charges and clauses for the balance transfer card. Going through the offer carefully is mandatory before applying for the deal. Advantage: The biggest advantage of the balanced transfer card is the interest free period offered. If carefully planned, the debt can be resolved within months with regular payments. Since there is no interest rate it is easier to plan the installments and manage the debt. During this time, although using the credit cards will not be possible, it will help in developing a controlled spending habit, which will help later to manage your finance. Downside: Balance transfer has a negative effect on your credit history and causes your credit scores to drop further. Balance transfer fees may seem like a big amount, especially when you have a debt. Also, the individual must be ready for the no credit card phase, before applying for the balance transfer offer.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.

Related Research:

Top 5 Cards for Travel from Our Partners: Summer 2018 – Expert’s Choice

Top 5 Cards for Travel from Our Partners: Summer 2018 – Expert’s Choice

Posted: February 12, 2018

The sun shines more and more each day, flowers are in bloom and you already feel how hot it is getting - summer is here. Summer holidays are almost here, and you are in need of dire preparation. You can lift in spirits and let CreditLand ... Continue reading
Cash Back or Travel Rewards? Here’s How to Decide On The Right Card

Cash Back or Travel Rewards? Here’s How to Decide On The Right Card

Posted: February 10, 2018

If you're trying to find the perfect rewards credit card, you might feel like you're drowning in options. There are just so many out there, and many of them look similar. This can make it tough to decide on a card. One thing people often ... Continue reading
Price Protection: Credit Cards That Will Refund a Price Drop

Price Protection: Credit Cards That Will Refund a Price Drop

Posted: February 8, 2018

Those who often find themselves buying stuff and then discovering that they could pay less for the same item they've just bought, will appreciate this credit card benefit – price protection. This is the least known and the most neglected ... Continue reading
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!