The use of credit cards is rapidly increasing, similar to taking a loan from a bank and spending it. However, situations often arise when people don’t have enough funds to pay off their debt, i.e., the credit card bill.
What is a Balance Transfer?
A balance transfer allows you to pay off one credit card’s bill using another credit card. Essentially, it’s like taking on new debt to clear existing debt. While this can help some people, others may find themselves trapped in a larger cycle of debt.
Understanding Through an Example
Imagine you have an outstanding balance on a credit card but can’t pay it off. If you decide to delay the payment until next month, you’ll face late fees and interest, which can range from 36-48% annually. However, if you have a second credit card, you can transfer the balance at a lower interest rate.
How to Execute a Balance Transfer
There are two main ways to conduct a balance transfer. First, you can call the bank’s customer service and request a balance transfer. Alternatively, you can initiate it yourself through the bank’s app or website, provided you have the card details. Each bank has its own process for this.
Benefits of Balance Transfers
If you don’t opt for a balance transfer, you might need to arrange money from other sources, pay late fees, or take out a loan with additional interest. In comparison, a balance transfer typically incurs a lower cost. Additionally, it helps you avoid being marked as a defaulter.
When Balance Transfers Become a Problem
A balance transfer essentially means using one debt (credit card) to pay off another. Overuse of this feature can negatively impact your CIBIL score. The major issue is that frequent use across different cards can lead to a cycle of debt, making it harder to manage payments and escape the debt trap.
