Business
How Do Credit Card Balance Transfers Work?
Cardholders may sometimes face one or more credit card debts that they are not able to pay at once. In this case, they may transfer the entire outstanding amount from all the credit card accounts to a single account. The balance transfer credit card that consolidates the outstanding amount usually charges a much lower interest rate as compared to the finance charges. Do note that certain card providers even offer 0% interest rate for a limited period.
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Benefits of credit card balance transfer
Reduced Financial Strain – Balance transfer credit cards charge a significantly lower interest rate when compared to finance charges. Credit card finance charges (interest rates) are about 3.5% p.m. while the interest rate on a balance transfer is usually around 1.8% per month. Some card providers may also offer 0% interest rate. Lower interest rate means lower financial burden.
Stabilize Credit Score – Lowered interest rates will make it easier for the cardholders to make payment and hence stabilize their credit score. They can even improve it with timely payments.
Interest-Free Period – Credit card providers offer an interest-free period on new purchases post balance transfer as well. This way customer can make new purchases without incurring interest rate on it.
Other Benefits – Credit card providers sometimes offer teaser rates or other introductory offers to customers. These benefits may include longer interest-free periods, low interest rates, etc.
There are some fees and interest included in these services
Processing Fee – Customers will be charged a processing fee for a balance transfer that can range anywhere between 1% and 3%. Some banks may also charge a flat fee.
Interest Rate – The interest charged on Balance Transfer can be 0% for a certain period. But, the interest rate is usually around 0.75% and may go up to the particular credit card’s finance charge.