Today all banks try to induce potential customers to switch from one credit card to another by offering balance transfer that too at a cheaper rate. It is generally known that low interest rates or sometimes even zero interest rates are available for balance transfer. But you should know that these rates are for introductory period only (say 3-6 months) and once this grace period is over, it returns to the normal rates, that is, what your previous credit card company charged you.

Even still the rate of interest which you might be paying for your outstanding credit dues will always be higher than the balance transfer interest rate.

What does balance transfer mean?

Balance transfer is a facility offered by all the credit card issuing companies to cardholders which enables them to transfer the existing outstanding or debt of one credit card to another one that is less used or even new.

The credit limit of the new card or less used card on which you want to transfer the balance amount reduces proportionately to the balance transfer amount. Say the credit limit of your card is Rs 25,000 and you have opted for a balance transfer of Rs 10,000, then the credit limit on your original card will be reduced to Rs 15,000.

But here too you must remember that your balance transfer amount should not exceed 80 per cent of your credit limit. That is, if your credit limit is Rs 10,000 then the maximum balance transfer you can have will 80 per cent of this amount which is equal to Rs 8,000.

Balance transfer process

Before entering into balance transfer, it is important for you to know the process involved.

As a first step, you have to inform the credit card issuer from whom you would avail of a balance transfer that you want to avail of the balance transfer facility.

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The credit issuer will then send an officer with a balance transfer form. Here you have to fill in all the details of your old credit card and also attach your latest bill statement.

Normally after 7 to 10 working days, the credit issuer will send a demand draft (DD) to your residence which will be in the name of your old credit card issuer. After you submit this DD to the old credit card issuer your outstanding gets cleared. Now you have to pay the transferred amount to the new credit card issuer.

What to watch out for...

On reading the above process carefully, you will find that there are certain things on which you have to keep a very close watch.

As you know that the entire process takes 7 to 10 working days or even more, here you need to sense the catch here. While you are waiting for the balance transfer amount there are high chances that you may miss the due date of your existing card's payment.

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If you miss this due date then you have not paid even the minimum amount due on your card thus defaulting on your monthly obligations. This can have an adverse effect on your credit report.

Thus it is always advisable to keep on paying the minimum due amount till you receive the DD of balance transfer amount.

Have you ever transferred your credit card balance from one card issuer to another? What was the main purpose behind transferring your dues? Did the balance transfer serve your purpose? Does this facility help you in any way? If yes, then how?

Based on your experience would you advise people to go for balance transfer on their credit card? What are the pros and cons of such a move?

Share your views/plans with us. Write to us at getahead@rediff.co.in -- be sure to include your name, photograph, age and contact details. Interesting responses will be published right here on rediff.com.

Apnaloan.com is a guide to credit cards in India. Apnaloan also enables consumers get best credit card deals by making banks compete for their cards.