A balance transfer is a great option for those who have had a problem clearing out the credit card balances. But, it needn’t necessarily work for everyone. If you fall under the following category, you mustn’t opt for a balance transfer:
If your credit limit is low
If your credit card is new and your credit limit is low, you may not be able to benefit from a balance transfer. The idea of a balance transfer is that you are consolidating your debt from various credit cards to one card. The credit card to which you are transferring balance must be able to accommodate to the amount in the available credit limit. For instance, if your balance is RM3,000 on a credit card and you want to transfer the balance to another credit card, the available credit limit has to be RM3,000 and above on it. If your available credit limit on the card you want to transfer the balance to is RM3,000, it is cutting close as there will be fees charged.
If you have shopping tendencies
For instance, Alice transferred credit card balance from credit card A to credit card B, since the credit card A’s balance was zero, she used it to go shop. What happened here is that she filled up the credit card A before she could pay off credit card balance of credit card B. Now, she has two credit card balances and will have to take another balance transfer to clear both of them out.
Credit card balance transfers are there to help you clear out the debt and not to increase it. If you have no control on your spending, you must not opt for a balance transfer. If you do have to opt for one, you must ensure that you are not using the credit card from which you transferred the balance. The best way to do that is to cancel the card or keep it in your drawer. If you use the credit card to which you transferred the balance to make other transactions, you will be charged full interest. There is a good chance of your debt increasing.
If you have too many commitments
If your monthly commitment to debt is high because you have too many credit cards and personal loan, your application to credit card balance transfer will be rejected. The reason why one would transfer the balance is to get preferential interest rate and tenure. If you have maxed out on all the credit cards, you will have to apply for a new one. The application for a balance transfer will not be approved if more than 50% of your income is going towards clearing out the debt.
Bank Negara will prevent you from having more than two credit cards if your monthly income is less than RM3,000.
If you have no repayment discipline
If you do not repay in full and are only paying the minimum amount due, you will find it hard to clear out the repayments after the balance transfer. You will soon realize that by paying just the minimum amount, you would have incurred late payment charges and it will be the same as paying the full credit card interest. Balance transfer works only when you diligently follow the repayment schedule. The balance transfers will set monthly amount that has to be paid, if you fail to pay that amount, you will be charged a higher interest rate. Most credit card issuers require you to clear out the balance in a couple of months, 6 to 12 months. If you do not make the payments on time, there is no way you can avoid the higher charges.
Balance transfers are great when it comes to clearing out the balance due and it helps you to clear out the debt efficiently. But, you must use it wisely by not making additional charges on the credit card and clear the balance out in full each month. Balance transfers help you to clear out huge balance due and interest rates when you use it in the right way.