Due Diligence. Getting around credit card dues

Credit card companies are known for charging sky-high rates of interest on unpaid card balances.

The oft-trodden path to pay off outstanding credit card balances is to transfer that amount to another card through their balance transfer facility.

The idea is that you can switch over to a card that has a lower rate. But there are a few points to note before you go for this.

For one thing, a balance transfer allowed by a credit card company usually offers an introductory interest rate.

This rate applies for a certain period after you transfer the amount.

Once this promotional period expires, the interest rate changes, and it could even be higher than the card on which you made the transaction in the first place. For instance, SBI has a plan which charges a 1.7 per cent monthly interest. That is lower than most credit card interest rates. But then, this rate applies for a period of six months only.

Thereafter, you have to shoulder the regular 3.35 per cent per month interest applicable on the credit card.

So to get the most savings from a credit card balance transfer, repay the entire amount during the promotional period. Second, you may only qualify for the promotional interest rate if you adhere to certain conditions.

Terms and conditions also apply to balance transfers. Banks may, for instance, specify minimum amounts that qualify for such transfer, though it’s usually low.

You may also not be able to transfer a card’s balance if it has been overdue for more than a defined number of days or months.

Others such as Kotak Mahindra Bank don’t transfer balances for cards that are less than six months.

The third point to note is that banks charge a transfer fee, which increases your cost.

For example, SBI offers a balance transfer facility that charges zero per cent interest for 60 days. However, this entails a processing charge of 2 per cent of the transaction amount or ₹199, whichever is higher.

HSBC, on the other hand, levies 1 to 2 per cent interest on balance transfers to its credit cards, but the processing fee is 1 per cent of the transfer amount, subject to a minimum of ₹149.

Kotak Mahindra Bank charges a whopping processing fee of ₹349 per ₹10,000.

The fourth point is that some banks have variants of the transfer facility. HSBC, for example, has an EMI facility on the balance transfer. You can choose to repay the amount in six, 12, 18 or 24 months at interest rates varying from 15 per cent to 21 per cent per annum. There is no fee for foreclosure of the balance transfer either. To determine whether it makes sense to utilise a balance transfer facility, look up one of the easily available balance transfer calculators online, such as the one at www.easycalculation.com .

Finally, gauge the impact transferring the balance will have on your credit score. High credit card balances indicate you could have more debt than you can handle.

Check if your transfer has been successful; else you could wind up missing the payment deadline on your original credit card. That can result in a late fee and a black mark on your credit report. Call up your bank’s customer care number to check if the transfer has been concluded.

The transfer process usually takes about three days; ensure you do it well in advance of your payment deadline.