Balance transfers allow cardholders to move outstanding balance from one credit card to another with the option of repaying via EMIs. While interest charges may still apply, it will be much lower compared with the high finance charges on overdue card balances, making it a smart strategy for those struggling with credit-card debt. Also, they can be an effective way of consolidating multiple credit card debts. Let’s take a closer look.
Card issuers offer balance transfer facility, allowing eligible cardholders to transfer dues from one or more credit cards issued by different banks. While the total outstanding amount stays the same, repayment becomes more structured, as you can opt for EMI plans typically ranging from 9-18 months, depending on the issuer.
If the outstanding is ₹1.20 lakh on a card, ideally, paying off the entire outstanding would be the best option. However, failing to do this could result in finance charges, which can be as high as 50 per cent p.a., depending on the card variant along with late payment charges. Moreover, until you clear the due in full, balance amount as well as new transactions will continue to attract finance charges. Balance transfer can help ease this burden.
If you opt to transfer the balance to a credit card from a different issuer and convert it into a six-month EMI plan at 1 per cet p.m. interest rate, it would result in an EMI of ₹20,706 a month, with total interest payment of ₹4,236 —significantly lower than the usual finance charges. Since the outstanding balance on the other card is cleared, new transactions will no longer accrue interest, further easing your financial burden. Hence, the transfers can be effective in managing financial burdens, as their interest rates are often much lower than those of standard credit cards. However, keep a few things in mind.
Before availing the facility, you must compare the interest rates and charges associated with the current outstanding against interest rate on balance transfer. Some issuers may also offer an EMI conversion option on your existing card, allowing you to spread repayments over many months without transferring the balance to another card. However, conversion also comes with additional charges.
To make an informed decision, compare the total cost of both options and choose the one offering most saving. Ensure that balance transfer results in a meaningful reduction in overall interest costs. Also, such transfer comes with a one-time processing fee, which should also be factored into your calculations. Usually, processing fee on balance transfers ranges from 3 per cent to 5 per cent of the transferred amount.
Interest-free period
Some issuers also provide an interest-free introductory period wherein there would be no additional interest on balance transfers for, say, the first 6 months. If you opt for it, it is crucial to consider the EMI amount. If you have a large balance and choose a shorter tenure, EMI becomes larger, which can again strain monthly cash flow and put you back in the financial situation you are trying to escape from. Hence, it is important to pick a tenure aligning with financial situation and make repayments manageable.
You can choose to transfer balances between existing cards from different issuers or apply for a new card to avail this feature. In both cases, eligibility and available credit limit will be key considerations.
While it is advisable to be disciplined with your card spends and repayments, if you get into a credit card debt, balance transfer is a viable option. Along with balance transfer, you should also consider other options like a personal loan or secured loans like gold loan to pay off your outstanding credit card dues. Compare all available options and choose the most suitable and cost-effective way to pay off your debt.
(The writer is chief business officer, credit cards, Paisabazaar)
Published on April 28, 2025
