What Does Balance Transfer mean? How to Use a Balance Transfer Credit Card?
Do you wish to reduce the interest amount you are paying? You should consider balance transfer credit cards in such situations. But what exactly is a balance transfer?
What Does Balance Transfer Mean?
Balance Transfer is a process of transferring a debt with a high rate of interest on the credit card(s) to another credit card having a lower rate of interest. This tactic helps in applying more of the payments to principal amount every month instead of interest charges. This can help you in eliminating your credit card debt quickly.
You might be charged a fee for completing the balance transfer, usually, a percentage of the amount transferred. You can transfer only an amount equal to your credit limit on your new card.
How to Use a Balance Transfer Credit Card in UAE?
In case you have racked up some of the debts on your current credit card, don’t worry this can happen with most of us. Instead of trying to make payment of your debt, another option is transferring the balance to the new credit card that has a competitive offer on balance transfer.
But what exactly is a balance transfer card? The balance transfer credit cards are the ones that include competitive deals on balance transfer at that part of the year when people are usually looking to pay off their debts.
Keep in mind, that credit cards may offer a 0% interest on balance transfer only for a certain period of time. This period may range from three months to 24 months. When you take advantage of this offer, your balance will be transferred from the existing credit card to the new balance transfer credit card. While the aim of the credit card provider is to get you as their new customer. You must try to take advantage of the no interest period. You should use your balance transfer card for the payment of your debt before this period ends.
What is the Amount of Debt that Can Be Transferred?
The maximum amount of debt that can be transferred as balance transfer depends upon the discretion of the bank. It can be 80 percent of the credit limit or equal to the credit limit.
Do any Hidden Charges Exist?
After looking at the 0% interest on balance transfer, you may be tempted to switch cards. However, you should keep in mind that some credit card providers charge handling fees on balance transfer which could be a certain percent of the balance you are transferring.
What Can be the Benefits of a Balance Transfer Credit Card?
The main benefit of balance transfer credit cards is the Savings. You may potentially save a lot of dirhams in a year by shifting your debt to the 0% interest deal.
What Could be the Traps on a Balance Transfer Credit Card?
Although the best balance transfer credit cards UAE could be helpful for paying down the debt, here are a few things to keep clear of.
Applying for More Than one Balance Transfer Deal
Every time you apply for a card, it affects your credit score. So it is recommended that you check your credit score before you apply so as to make sure you are in a considerable position to get approved.
Failing to Build a Budget for Repayment
It could be tempting to pay only the minimum amount of repayment every month. However, this means that your debt is still not repaid when your no-interest period ends. Which means that the zero percent interest rate will change to the higher purchase rate. Take out time to work out how much would you need to pay every month for blasting the debt before the end of the no-interest period.
Balance Transfer Credit Card Spending
While receiving your new plastic, you might be thinking that it is time to use it for your good. But, this actually means that it may take longer to pay off your debts. Hence, use your balance transfer credit cards wisely to make payments.
Withdrawing Cash Through an ATM
Making cash withdrawal through your credit card is a trap which should be avoided unless very urgent. There are two issues on making cash withdrawals which could make you slip deeper into debt. First is that you will be charged a cash advance fee which is usually high. Second is that the no-interest days usually do not apply to your cash withdrawals.
Over to You!
It is recommended that you use your balance transfer credit cards only for balance transfer and nothing else. The best thing to do is using the other card for making everyday purchases and making full payment on that card at the end of every month.