How Do Balance Transfers On Credit Cards Work?

The one effective strategy in tackling credit card debt is to consider using balance transfer credit cards. If you're unfamiliar with this approach, this article is designed to provide answers and guidance.

Balance transfers can be a valuable tool, but it's crucial to use them wisely and understand the nuances. We’ll explain what balance transfers are, the psychology behind them, how to execute one safely, and suggest three popular balance transfer credit cards to consider.

What is a Balance Transfer?

A balance transfer is the process of moving your existing credit card balances from one or multiple cards to a single card that offers a lower interest rate, typically for a fixed introductory period. 

This lower interest rate can sometimes be as attractive as 0%. When used responsibly, a balance transfer can simplify your payments and save you money. However, be mindful that credit card companies often offer such promotions with an eye on making a profit, so it's essential to understand the fine print.

The Psychology of Balance Transfers

While many credit card companies provide an initial 0% interest rate, it's crucial to be aware that this rate can increase significantly after the introductory period. Falling into the trap of complacency can lead to increased debt. To make a balance transfer work for you, it's vital to stick to your repayment plan and not let the lower interest rate lure you into a false sense of security.

Things to consider when choosing a balance transfer credit card

1. Introductory APR

The introductory APR is the interest rate that you will pay on your balance transfer for a period of time. Typically, the introductory APR is 0%, but this can vary depending on the card.

2. Upfront fees

Some balance transfer credit cards charge an upfront fee for transferring your balance. This fee is typically a percentage of the balance you are transferring.

3. Balance transfer limit

The balance transfer limit is the maximum amount of money that you can transfer to your new card. This limit is typically a percentage of your credit limit.

4. Annual fee

Make sure you choose a balance transfer credit card within your means.

Top 3 Balance Transfer Credit Cards in Malaysia

These cards offer a low introductory interest rate for a period of time, typically 6-12 months. Here are three of the best balance transfer credit cards in 2023, based on their introductory interest rates, fees, and other features:

1. Alliance Bank Visa Platinum Credit Card

Eligibility

• Minimum salary income: RM2,000
• Annual fee: of RM120 (waived in the first year)

2.  Standard Chartered Visa Platinum Card

Eligibility

• Minimum salary income: RM3,000
• Annual fee: RM120 (Annual fee is waived for the first 2 years, subsequent years waived with minimum spend of RM12,000 per annum.)

3. Maybank 2 Gold Card

Eligibility

• Minimum salary income: RM2,500
• Annual fee: RM0 

How to make the most of your Balance Transfer?

To ensure a safe and successful balance transfer, follow these steps:

1. Create a Payoff Plan

Calculate the exact amount you need to pay off your balance before the introductory period expires. Failing to do so may result in additional costs, defeating the purpose of the balance transfer.

2. Understand the Balance Transfer Fees

Balance transfer agreements often require you to pay a processing fee, which is usually a percentage of the balance transferred. Evaluate whether the money you'll save on interest outweighs these fees. Occasionally, you can find balance transfer programs with no transfer fees.

3. Avoid Adding More Debt

A balance transfer is a tool to reduce your existing debt, not an invitation to go shopping. Adding more charges to your credit card only deepens your financial hole and makes it harder to pay off your balance.

Balance transfer credit cards can be a great way to save money on interest if you have a high credit card balance. However, it is important to choose the right card for your needs and to use it responsibly. By following the tips above, you can use a balance transfer credit card to pay off your debt faster and save money on interest.