Thinking of transferring the loan to another bank? Avoid these mistakes!7 min read
By now you are aware that a quick fix to managing your cash problems is by getting a Personal Loan or a Credit Card. Personal Loans are unsecured loans that you don’t need to pledge any collateral against. You can use them for sudden financial emergencies. However, when it comes to both Credit Cards and Personal Loans unless you’re a pro at managing your repayments and making them on time, every time, you may find yourself deep in financial debt.
Both Personal Loans and Credit Cards come with comparatively higher interest rates and if you’re neck-deep in debt, it can be pretty financially debilitating. Thankfully, not all is lost. You can reduce your loan debt considerably by opting for a balance transfer. A balance transfer will help you reduce your current loan debt by transferring your existing loan at a lower interest rate.
However, like with any financial decision, you’re prone to making mistakes even during a balance transfer and if you’re not looking out for some of the things that we’re going to outline today, a balance transfer may end up hurting rather than helping you. Let’s find out more.
Ignoring The Fine Print:
The fine print of any financial document may be loaded with legalese that you’ll need years to grasp, but that doesn’t mean that you should completely ignore them. If an offer seems too good to be true, it probably is. Look out for caveats and grey areas in the terms and conditions and reach out to the bank if you need more clarity.
Undertaking The Balance Transfer Unnecessarily:
While opting for a balance transfer may help you reduce your EMI burden, one thing that we tend to ignore during a balance transfer is that banks levy a charge that is equivalent to 1-2% of your loan amount. Thus before opting for it, work out on paper if the balance transfer turns out to be less expensive than what you’re incurring by paying your EMIs. The balance transfer fee may not make sense if you’re looking at spreading out the cost of your debts and paying them off over a considerable period of time.
Transfer Balance Between Two Cards Of The Same Company:
One tiny detail that you may be well unaware of is that banks do not authorise balance transfer between their own cards. This is simply because they want to avoid losing money on interest charges.
- Adding More Debt To Your Old Card:
Once you’ve made up your mind about opting for a balance transfer, remember to not load up your old Credit Card with debt because that would mean getting back to square one. If you’re not able to pay off this debt, you’ll start incurring interest on it again. This will leave you with two outstanding payments at the end of every month. Be sure to avoid this blunder when you’re opting for a balance transfer.
Defaulting/Making Late Payments:
While a balance transfer may considerably reduce your EMI burden, if you’re going to stick to your old ways of missing your payments and not following a strict repayment schedule, you would be defeating the very purpose of a balance transfer. Just like late payments on your Credit Card bills pull down your Credit Score, your balance transfer will be affected too by late payments. You might have to pay double-digit interest rates as a result of missed payments. In fact, even to qualify for a balance transfer, you would need a good Credit Score and that won’t be possible if you keep missing payments.
Not Having A Debt Repayment Plan
A low-interest rate can be a great opportunity to pay off your debts once and for all. However, it’s highly crucial that you earmark a proper repayment schedule for it. Calculate the monthly payments that you will be making and chalk out a proper repayment schedule for it. This will help you slowly chip away at your outstanding debt.
Balance transfers can be a good tool for debt reduction but only if you follow the rules. Make sure you comb through the fine print carefully. Otherwise, you may end up losing all the savings you hoped to make from the transfer. For instance, many banks, in order to lure customers, offer promotional rates. Go through the fine print carefully to check when the promotional rate expires. This will help you keep track of when you would need to start paying the regular interest charges.