Dubai: A lesser-known benefit of balance transfer cards is that you can consolidate multiple debts. So if you have been struggling to keep track of your monthly debt repayments, transferring your different credit card balances into a new credit card can help at times. Here’s how.
“If you've been having trouble keeping track of all the payment dates, especially if you’ve maxed out several credit cards and find yourself getting deeper into debts over time, you are likely paying late and accruing late fees,” explained Dubai-based consumer credit analyst Rupesh Naish.
“Transferring all those balances to one card would give you just one card and monthly bill to keep track of. Also, doing this by using balance transfer credit cards, which can also be called ‘zero per cent APR credit cards’, actually lets you avoid paying interest altogether for a limited time.”
A ‘zero per cent APR’ on a credit card means that you won't be charged interest on purchases, balance transfers or both, for a fixed period of time. Once the card's promotional period ends, you'll be charged interest on any remaining balance.
You can’t always transfer multiple debts to another credit card
Before understanding how to go about transferring your different debt balances, it’s vital to understand whether it’s always possible to transfer multiple debt balances to another credit card? In theory, yes, but it may not be always possible. Here’s why.
“In theory, while there's no limit to the number of separate credit and store cards you can transfer over, in practice, you're limited by the credit limit on the card. There will usually be a time limit for transferring balances though,” said Rajesh Markara, an Abu Dhabi-based debt restructuring advisor.
“Choose one or more cards with the highest rates and transfer those balances first, if the new credit limit permits. But note the balance transfer fee. The terms will generally require completion of the balance transfer within a certain number of days, usually 60 days from account opening.”
How do you transfer multiple debt balances to a new credit card?
In order to transfer your debt to another credit card, generally, you can log onto your account and request a balance transfer through the issuer's portal by providing information about the debt you're looking to move, including the issuer name, the amount of debt and the account information.
“When considering transferring multiple debts to a new card, keep in mind that you may not want to transfer more debt than you can pay off during the initial promotional period, which lasts from six to 18 months. It depends on the post-promo interest rate of the balance transfer card,” added Naish.
“If the go-to rate is 22 per cent and the rest of your debts have more moderate rates of 10 per cent to 15 per cent, for instance, it may make sense to transfer less than the full balance from even just one card.”
How to estimate how much credit balance should be transferred?
To determine the right transfer amount, Markara suggested first figuring out what monthly payments you can comfortably afford and multiply that number by the number of months in the promotional period of whichever card you're considering.
“Only transfer what you can afford to pay when interest rate accrued on the balance is zero. If you do the math, the higher rate after the promotional period will eat up all the savings you got during the period. It's better to keep whatever balance you can't pay off on a lower rate card,” he added.
“Also, when you shift a balance to another card, you may have to pay a balance transfer fee, which is typically 3 per cent to 5 per cent of the amount being transferred. Some cards don’t charge a balance transfer fee, but cards with the longest introductory offers typically come with fees.”
While both types of offers give you the zero per cent introductory offer for a limited period of time, such as six, 12, or 18 months, the difference is what happens if you don't pay off your full promotional balance within the intro period.
With deferred interest, if you have any of the balance remaining after the promo period, you’ll be charged interest on the balances you had every month going back to the date of the purchase. But with ‘waived’ interest, the creditor only starts charging you interest on any remaining balance you have after the intro period ends, making it much safer than ‘deferred’ interest.
If you have credit card debt on multiple cards, it can be a good idea to consolidate it to one balance transfer card to save money on interest charges and manage your debt better, but there are limitations to doing so.
“While you can transfer as many balances as you want to a single introductory offer card, you'll need to open a card from a different issuer, first calculate how much debt you want to transfer, review the balance transfer limits, and transfer debt within the eligible time period,” said Naish.
However, if you’re using balance transfers to always move debt balances from one credit card to another in order to avoid making payments on the card or at least put off payment for a while, Naish cautioned that you will eventually fall deeper into debt.
“If you do take advantage of balance transfers when consolidating multiple debts, pay attention to when the low- or no-interest period ends and what the interest rate will be if you haven’t paid off the transferred balance before the period expires,” Markara added.