I will tell you about one of the most lucrative schemes of credit cards and how can you take the most from it. Well, Balance Transfer means that you can use one of your credit cards (If it has this facility) to pay your other banks’ credit card outstanding.
Q1) Why Would I want to do that?
Answer: Many banks like SBI provide this facility. They charge less interest and provide you with some time say 6 months to repay that amount. If One of your cards say X bank has 50000 outstanding and you are out of cash then you can use Balance Transfer of Y card to pay that amount.
If you just pay the minimum amount and carry over this to the next billing cycle in your X card, you will incur a debit interest of about~ 3%(About 1500) for the next month. This cycle will continue till you pay off whole amount.
Now, if you use BT, Y will pay to X and now you have to pay X at a lower interest per month in 6~12 months, 1~2% interest/month, Some Processing Fees(depends upon scheme).
Q2) Can I close BT before 6 or 12 months?
Answer: Yes, just pay full amount whenever you have it.
Q3) Why would Banks want to do that?
Answer: Now, here is the catch. Suppose, you have retail purchases on your Y card of Rs 10000 and use the same card for BT to pay your X card outstanding of Rs 50000. Now, suppose your bill gets generated for Y and you pay Rs 20000. What happens is only some part of this amount goes towards retail payments. The rest will go to BT. So, till the time you clear off your BT of Rs 50000, your retail balance of rs 10000 will also incur interest of about(2.5~3% /month). If you pay your BT in 6 months, then apart from BT interest, you are paying about Rs 250~300/month reducing basis interest for retail amount.
So, just for Rs 10K you are being charged Rs 1000~1500 in total for 6 months.
Apart, if you use card Y for anything, then it will add up in retail only which you can’t clear off till your BT is cleared.
Q4) How can I use BT judiciously?
Answer: Make sure that you don’t have any outstanding or purchases.After booking BT, don’t use the card for any retail transactions till BT gets cleared. If you have even a small outstanding, first clear it off and then book BT. After booking BT, your card will not have any grace period or interest free period and they will charge interest from the date of any transaction. Irony is that you can’t clear that also. You will have to wait for your BT amount to get cleared first.
Hope this helps.