When Should you Go for a Balance Transfer?
India is home to the largest millennial population around the world which we call the youth, which constitutes the largest student lobby and the maximum number of people as working population. According to a recent survey, Indian credit market has seen a significant growth in terms of borrowers through personal loans and credit cards. A study suggests that the credit card balances and the number of accounts have increased by 40% to the tune of ₹ 10,900 Cr at the end of Q3 2019-20. The growth in the number of newer accounts have been recorded at whooping 134% as the customers demands have continued to accelerate.
As the numbers keep increasing, and the tendency to cover routine expenses through the means of credit cards and personal loans require considerable knowledge in order to keep your financial health intact and free from the debt trap. In order to do so, Balance transfer is a feature which might help the borrowers to keep the costs of borrowing as low as possible.
Balance Transfer is a very lucrative facility by which one can transfer their existing loan balance to another lender at a lower cost. Initially this facility was only available for the credit card balances, however now it can be done for personal loans as well as home loans.
If in case you are wondering when is the time to avail a balance transfer, ask yourself a few simple questions as described below:
Change in your spending habits –
Most of us accumulate unwanted debt by the way we spend. A credit card is a tool that makes the process of buying the things you need or desire relatively easier and you only pay when you have the money. In case, as a result of your spending habits in the past, you have accumulated debt which is extracting most part of your income, you need to change your spending habits else you end up in a series of balance transfers which serves no purpose.
However, currently there is no limit on availing a number of balance transfers on your account, but the balance transfer cycle might increase the overall interest burden after a certain time.
Ability to pay-off debt early –
Balance transfer is considered to be an easy solution for those who are not confident about paying off their existing debt within the interest-free period as provided by the credit card company. If a person does not pay the minimum balance due at the end of each billing cycle, they are liable to pay back the minimum balance with accrued interest which is a high price to pay.
However, one must avoid paying off balances after the stipulated time of a yearly cycle as the balance amount which is paid after the end of the initial interest-free period might show adverse observations on your credit report.
Looking forward to a Loan –
The balance transfer feature might help you prepare for a loan as well as pay your credit card dues. In technical terms, the process of availing a loan and bringing all your debts under one umbrella is known as debt consolidation. If a borrower is under a burden of multiple credit card debts and is not able to pay back due to heavy interest burden, availing a loan with a balance transfer facility with lower rate of interest might provide some relief temporarily.
Balance transfers are easy to avail these days but are not instantaneous. It depends on various factors ranging from the type of issuer, credit history of the applicant and a number of other factors, depending on these your balance transfer could take as little as three days from a prompt lender or as long as six weeks to come into effect completely. And while your credit card issuer should be able to give you a sense of how long it will take, there’s no way to know in advance exactly how long you’ll have to wait.
In the meantime, instead of sitting with your hand-on-hand kindly be sure to pay at-least the minimum due to your existing creditors. Failing to do so could lead to late fees and damaged credit and could even disrupt the balance transfer in progress.
Most of the banks also allow a top-up facility once you avail the balance transfer facility, which is particular to personal loans. However, the primary role of a balance transfer is to reduce the existing debt burden and avail lower rate of interest, in case of a top-up loan the applicant might end up attracting more burden. One must keep the option to withdraw funds open, if in case a sudden need arises.