How Do Balance Transfer Plans Work?
Have you been irresponsible and maxed out your credit card or know someone who has done this? If you have, the prospect of settling your credit card debt could be daunting, especially when you consider that you have priority expenditures (bills, food, etc.) and high credit card interest rates to deal with.
Credit card interest rates are charged on the balance you carry forward after every billing cycle. They’re high as they’re meant to discourage you from carrying credit over in the first place – between 15% p.a. and 18% p.a. is the best you’ll get – and they’re calculated daily. This means that every day that you do not clear off your credit increases your balance!
What Is a Balance Transfer Plan?
A balance transfer refers to the process where you are allowed to transfer your credit card debt from one card to another card. Do it to move that debt from a credit card with a high interest rate to a credit card with a low interest rate. Some plans even come interest-free for a fixed period of time, so if you’re truly committed to repaying it off, you’ll only need to worry about your transferred sum and no additional charges, not even GST.
Remember that a balance transfer plan cannot be done with a different credit card from the same bank! It has to be done with a different bank, and you can either transfer to an existing credit card or apply for a new one.
Generally a bank in Malaysia will allow you to do one balance transfer for up to three different credit cards. You would usually have to transfer a minimum of RM500.00 to RM3000.00 depending on the bank and balance transfer plan, and you’ll be given any time between three months to four years to pay it off.
Types of Balance Transfer Plans
1. Fixed balance transfer plan
A fixed balance transfer plan provides you with a debt repayment schedule from the bank, with a fixed monthly instalment. Of course this kind of plan is not flexible at all but you still want to consider it because you do gain by getting better interest rates on your debt. You’ll also know exactly how much you must pay each month according to your schedule.
2. Flexible balance transfer plan
If you think you’re responsible enough to handle your own debt-dissolving warpath, then the flexible balance transfer plan is an option for you. The bank gives you the freedom to repay the balance as you like provided you hit the minimum amount and clear it all off by the end of the balance transfer period. Otherwise, the fantastic interest rates you’ve been enjoying will be no more!
Why You Might Want to Consider a Balance Transfer Plan
Compound interest is the keyword. Interest on your credit card balance is calculated on your remaining balance, every day, which means that the interest you pay gets higher every day. With a balance transfer plan the interest on your debt can be from as low as 0% to a maximum of 10%. Use a balance transfer plan if you’re serious about clearing off your debt.
A note of caution, though: don’t be tempted by the lower interest rates to rack up more debt on your new credit card! The credit card tied to your balance transfer plan only allows you to repay your initial balance using that incentivising interest rate; any new purchases on the card will be charged the usual interest rates.
Before you commit yourself to any one balance transfer programme, be sure to shop around first. You want to make sure that you get the best deal out there so you can settle your debt as soon as possible and as stress free as you can. Of course paying your instalments according to the schedule given to you is also crucial to staying stress-free!