What is a Balance Transfer?

With the rise of so many credit cards, it’s quite difficult to decide which bank or what credit card to choose from.

One of the services you should look for in a credit card is “balance transfer”. I think this is one of the most useful services of a credit card that allows you to pay your bills conveniently.

A balance transfer is normally described as transferring a part of the balance from an account to another account. Say for example, you owe quite a large amount of money from Bank A. Then you also have a credit card with Bank B. Upon your request, you can transfer a part of your bills from Bank A to Bank B. Bank B will be paying your balances from Bank A.

Credit card balance transfers are good ways if you’re planning to eliminate credit card debt or you’re looking for tips on unsecured credit card debt consolidation.

How does it work?

Ideally if you don’t have a second credit card, then you would need to apply for another credit card. You have to make sure that the new credit card would offer the “best” interest rates possible. By best, meaning an interest rate that should be lower than what your existing credit card (Bank A) charges you for.

When you apply for a second credit card (bank B) that offers Balance Transfer, you would want to make sure that you will be using Bank B only for the purpose of paying off your balance transfer.
Otherwise you would be paying for finance charges again, and it would be no different from the charges with Bank A.

Upon application of your balance transfer and approval of Bank B, your balance will then be put in your account with Bank B. Again, note that this is highly advisable if Bank B allows you to stretch the payment at a relatively lower interest rate as opposed to Bank A. That is the reason you are ‘transferring your balance to Bank B’ so you can pay off your bills easily.

What are the advantages of a balance transfer?
This will work to your advantage if Bank A charges a high interest and Bank B offers a competitive interest rate. You would need to enquire with your bank/company if they offer balance transfers or if they have tie ups with other banks/companies.
Another advantage is you will be relieved of any other Finance charges that you have incurred with Bank A.

Use the balance transfer to your advantage, but make sure that you spend wisely as well. The more unpaid bills you accumulate the higher the finance charge, and possibly a lower chance of having a balance transfer approved.

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