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Research: Understanding the concept credit card balance transfer better -

A Credit card balance transfer refers to transferring the balance on a credit card account to another credit card account. The process of transferring is very quick and can be completed in an hour because of the automatic services extended by the card servicing company.

The process of balance transfer is being encouraged by several credit cards servicing companies to attract new prospective customers. The process benefits the card holders because, the new bank or the new card will be issued with attractive incentives, low rate of interest, high reward points, extended credit limit, validity and many more. On the other hand, the process of credit card transferring the balance is advantageous to the credit card company since the reputation of the company goes up when they gain new customers. However, it will be a negative marking for the prior card company from which the card transfer has been made.

The combinations of the following three things determine the balance transfer of credit card from one account to another account.

Normal rate: It refers to the common rate of interest of credit card. Lower rate provides higher benefits to the customer and fewer benefits to the company. After the transfer, the normal rate will be applicable to the new card irrespective of the rate of interest of the credit card company. Most of the credit card balance transfer involves in transferring of funds from a higher rate of credit card to the lower or zero rate credit card.

Teaser rate: Credit Card Company invites the customers to transfer balance by offering low rate of interest. Zero rate interest is the normal rate offered to the new credit card account. However, teaser rates are temporary. The lower rate is extended for a period ranging from six to fifteen months. Hence the customers should pay attention to the validity period of the low rate offer as the rate of interest may increase suddenly.

Fixed rate offer: It is also offered with low rate of interest but the low rate will be applicable until the transferred balance amount is paid in full. This enables the customer to maintain the lower rate of interest for the old debts.

Transaction fee towards balance transfer from one credit card to another credit card company will be levied. The fee amount will be determined based on the amount of debt transferred.

Hopping strategy

Since transferring the card balance always results in lowering the rate of interest, the customer may repeat the process continuously and save a lot of money. The basic idea of transfer commences once the period of teaser has been expired. To safeguard the interest of the credit card company, the contract of transferring from one card account to other may include a clause that stipulates the customer is not eligible to utilize the process for the second time within the stipulated period.

The credit card account provides the list of payments in a specific order. The order of payments is basically determined by the rate of interest and lower rate of payment will be sequenced with the higher priority and the payments with higher rate will be generated with least priority.