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October 26, 2020
How Credit Card Balance Transfers Work

How Credit Card Balance Transfers Work

A credit card is a short-term loan wherein you take the money for one billing cycle and return it back either in the form of EMIs or in a lump sum. A credit card helps the customer use the issuer’s money for s stipulated period of time. If the payment is delayed, the banks or the financial institutions can charge interest at the rate as high as 36%. Credit card activity is tracked and recorded because it impacts the credit rating of an individual and the FICO score of credit card.

A balance transfer is when the cardholder repays the existing debt with a new credit card. He or she can transfer the amount outstanding to a new credit card. The amount remains the same while transferring. People transfer the amount to the new credit card because of the low-interest rate or low finance charges.

Credit Card Balance Transfer

All the banks allow the cardholder to transfer the amount from one credit card to another credit card. Certain banks allow top transfer the amount from loans like auto loans, home loans to credit cards. Not always it is advisable to transfer the amount from one credit card to another credit card. To know whether it is profitable to transfer the amount or not, several criteria are kept in mind.

How Does The Balance Transfer Work?

balance-transfer-credit-cards-work

The average credit card transfer balance is 2.63% of the amount the cardholder transfers. But quite a few also charge around 5% of the amount transferred. Transfer fees help in covering the cost of processing the transaction and the risk of assuming the amount to be the debt by the banks.

How To Transfer The Balance:

Balance Transfer

The original credit card issuer pays off the debt or the outstanding balance to the new bank. The account number for your existing bank, credit card, the amount you wish to transfer, and the standard card application information, including the name, social security number, etc. has to be mentioned. The above three things are the prerequisites for the money to be transferred from one credit card to another.

Types Of Balance Transferable To Credit Card:

The amount transferable depends on the banks you get the credit card from. For example, CHASE will only allow credit card balance to transfer to another credit card while BARCLAYS also allows the balance of credit card, store card, auto loan, student loan, mortgage, small business loan to another credit card. Thus, it depends on the various different banks issuing the credit card.

Balance Transfer Rewards:

Balance Transfer Rewards

Transferring balance means drawing down the credit line to pay off an existing debt obligation. Unfortunately, several banks exclude the transfer of funds from getting reward points. But several banks do offer rewards points on the transfer of money; thus, it has to be clear to the cardholders that the transfer of money is not always profitable to them.

Do Balance Transfer Impacts The Credit?

A balance transfer does not affect your credit taking capacity directly. Balance transfers are not recorded anywhere, not in the credit card statements. But it can always impact the creditworthiness of the individual in many ways like:

  1. Credit utilization: the credit utilization ratio can change.
  2. Overspending: transfer can lead to overspending of the funds
  3. New credit access: a new credit card can impact the credit score of the individual. Every time a new credit card is issued, there is always a temporary dip for 3 to 6 months.

How Much Does Credit Card Interest Cost?

If the individual or the cardholder pays the bill on or before the due date, then he can avoid the credit card interest cost, but if he fails to pay the outstanding amount, then he goes into credit card debt. This debt comes with a cost of the average interest rate at the rate of 14 to 17 percent.

HOW MUCH DOES A CREDIT CARD INTEREST COST

But several banks or financial institutions give a grace period to the cardholders. If he pays the bill before the grace period gets over, he is not obliged to pay the interest amount.

Is Credit Card a Good Buy?

Credit cards have several features:

  1. Helps in building the creditworthiness of the individual
  2. Access to interest-free loans
  3. Valuable reward points
  4. Discounts, cashback, and waivers
  5. Shopping benefits and travel perquisite
  6. Cybersecurity

Buying a credit card is a responsibility; thus, before buying it, the individual should make sure whether he would be able to use it wisely or responsibly or not.

Read More:

Pros And Cons For Buying And Leasing A Car

Best Health Insurance Companies 2020

How To Find The Best Mortgage Rates?

Can You Buy Gift Cards With A Credit Card?

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