Unable to pay credit card bill on time? Try balance transfer

    I am tired of hearing peoples saying that they are scared about paying credit card bill of that month since they overwhelmed their budget. I often see my office colleagues ,my family especially my sister and my friends often overshoot the free credit period for purchases made through your credit card, and end up paying an exorbitant interest for their impulsive purchases. Even those who use multiple credit card more than a decade is not good in managing their budget, the worst thing is they are not even aware of the fact that there is a facility provided by their banks to pay the outstanding amount beyond due rate at very minimal interest rate…….. sounds weird?

Yes  this is true, there is a way out. You can reduce the interest burden by transferring your balance to another credit card issuer. This is called the balance transfer facility. Balance transfer could be a convenient way to delay your card payment with minimal interest, giving you time to arrange funds.

Making a partial payment or not paying your credit card bills can attract a high interest rate, more than 30 percent per annum in some cases, and can push you into a debt trap.

Using the balance transfer option provided by many credit card issuers in India, the interest outgo could be reduced to as low as zero percent for a few months, giving you enough time to arrange funds. Most banks would charge a nominal processing fee for this option.

HOW does this works?

Instead of paying an interest of 2.95 per cent per month on your outstanding dues, you can transfer the balance to another credit card issuer, and pay a lower interest rate. The new interest rate on the transferred balance may range anywhere between 0.99 per cent and 1.75 per cent depending on the banker and the card chosen by you.

Credit card companies usually do not allow you to transfer your balance from one card to another card provided by the same issuer. For instance, you cannot transfer balances from your ICICI silver card to an ICICI GOLD card or vice-versa. But you can transfer your balances from ICICI silver card to ABN Amro GOLD card. However, the transfer request might not be accepted if you have exceeded the credit limit.

What interest do you pay?

The interest rate differs from bank to bank. It also depends on the card you choose to transfer. Generally, the transfer rate for a premium card is lower than that for a normal card. Here is the list of few banks which provide balance transfer along with their interest rates

Axis	3 m - 0% p.m. 6 m – 0.75% p.m.
Corporation Bank	75 d - 1.50% p.m.
HDFC	0.50-2.0% p.m.
HSBC	6 m & 12 m – 1.25% p.m. 18 m & 24 m – 1.50% p.m.
Citi	12.0% p.m.
Standard charted	First 6 m -0.99% p.m.
Sbi	First 60 d – 0% p.m.  6 m – 1.70% p.m.
Icici	0 % p.m.
Kotak	3 m – 0% p.m.
Punjab National Bank	6 m – 0.99% p.m.

Using the balance transfer option provided by many credit card issuers in India, the interest outgo could be reduced to as low as zero percent for a few months, giving you enough time to arrange  funds. Most banks would charge a nominal processing fee for this option.

Will the lower rates apply for all future transactions?

The lower rate that you get by transferring your balance is applicable only for said specified months. After that, your outstanding dues will be charged at the normal 2.95 per cent a month. During this period, all your payments will be directed towards your balance transfer account, while all fresh purchases will be charged at the normal rate.

You might also get a preferential interest rate if you already hold an account with the bank whose card you wish to transfer your outstanding dues to. For instance, existing customers of HDFC bank get a lower- rate at 1.45 per cent. For non-HDFC customers, it is 1.65 per cent. Check with your banker for a preferential balance transfer rate if you hold an account in one of these banks.

Having more than one credit card is a basic requirement for using this service, though one still needs to carefully check and calculate the processing fee and various interest rate options available on a particular credit card.

Many experts say that the availability of this service should not be the only criterion for making purchases and people should try and stay within their budget.

"While it is an excellent way to save interest, and one can certainly make the most of this facility to gain some time to get one's personal finances in order, it is inadvisable to use this facility only as a means to delay payments," says Dia Kirpalani, Senior Manager of Financial Planning at Personal FN.

How One Woman Wiped Out $80,000 in Credit Card Debt

        JoAnneh Nagler was standing in the grocery store when she realized she had hit rock bottom and had to make a major change. She was 42 at the time, and had about $80,000 in credit card debt. "I was moving money from card to card. My small grantwriting business was tanking," she recalls. Nagler says she felt nauseous looking at the food in her cart, knowing it was only going to add to her balances. "I realized, 'I have to do whatever it takes to stop this train,'" she says.

Shortly after that epiphany 10 years ago, Nagler started reading as much as she could about financial planning, but she didn't find what she was looking for, which was a simple way to take control of her finances. So she created her own system, which involves multiple savings accounts that are dedicated to specific spending and savings goals, and getting a grip on daily spending without making too many lifestyle sacrifices.

Her new book, The Debt-Free Spending Plan, details her approach and her own recovery from debt, which ended last year when she and her husband made their final payment. Nagler, who lives in Burlingame, Calif., and works as a yoga teacher, money coach, and artist, spoke with U.S. News about what makes her spending plan different, and how others, especially couples, can use it. Excerpts:

How did you first get into debt?

I was in debt almost my whole adult life. I got my first credit card when I was 25. My husband and I used our credit cards to extend our income for things like dinner and clothing—stuff that seemed like needs. We racked up balances and it put pressure on our relationship. At the time, I was in a series of nonprofit jobs that I hated and I was longing for a creative life. I would be miserable at my job, and my husband would take me out to dinner to feel better, and then I'd feel more trapped in my day job.

When we separated, I moved to Los Angeles and I still had debt problems, so I knew it wasn't him—it was me, too. I went in and out of debt as I tried to fund my creative ventures. I used my credit line to fund my entrepreneurial venture of making music CDs, and I ran up about $80,000 in credit card debt

Why did you feel like you needed to invent a new system for paying it off?

I basically found books that said debt is a bad idea, and how to invest. But there were no tools on how to get out of debt and how to allocate money as it comes in. Some books said to do an analysis of your past spending history, but I already knew I was in trouble and [if I did that], I was just going to feel miserable. So I realized there was a big black hole [of helpful information] for people in debt. There's a lot of advice for people who are stable and want to plan, but not a lot for those in debt.

So I needed to create an easy, simple, five-minute-a-day tool that wouldn't consume my life or be so arduous that I'd check out after a month. I wanted it to take me five minutes a day and I needed daily tools that would keep me accountable. I wanted to make sure I could pay bills on time, fund daily needs with ease, and plan for things that are meaningful to me. And I wanted to my life to change within 30 days.

Did you have any background in financial planning?

Not at all. I went to some seminars and groups, and I used my creativity. I said to myself, "This is not rocket science." I've seen in some groups where people in debt have an emotional reaction that blocks them. I wanted this to make sense for the eight-year-old who froze up in math class and never recovered.

How does your system work?

I came up with a simple division of bills and daily needs, from food, fuel, dry cleaning, and household items. And then ways to make savings meaningful by creating free multiple savings accounts. In my household, we have a travel account, car repair accounts, short-term savings accounts for unexpected expenses, and money for Christmas and the holidays. You have to make savings real for yourself. If you want an outlet shopping day, great, make an account for that.

Debtors usually are mindlessly spending on [what they think of as] daily needs. We might spend $300 on a bulk warehouse and expensive wine. We have no accountability. Now, with a spending plan, you learn to prioritize what you need and love. It's not a constricting tool—it's an eye-opening tool.

Reward money is important. For me, at first, it was $5, and then it started to build. I love acupuncture and I'm also a yoga teacher; physical care of the body is important to me. I go to an acupuncture school instead of someone who costs three times as much. You can find things that work within your means. You can make painless downsizing changes.

The first year we did this, we went away five times on the money my husband saved from just having a simple coffee instead of a latte and taking his lunch to work three times a week. You feel no remorse and no guilt, and you feel good about what you're providing to your yourself and partner.

What about paying off the debt?

Large-scale debt repayment right out of the box is too much like a diet. If you engage in self-deprivation, you can just do it for a few months. For now, just pay the minimums and leave the debts alone. Learn how to live well on the cash you earn, and fund the things that make for a healthy life and the things that are meaningful to you. I'm not saying it's going to be fast; what you want is slow-and-steady steps.

You write a lot about how couples can work together to get control of their debt, too.

For couples, there is the aphrodisiac quality of a spending plan. When both partners go out and spend, we get into micromanaging each other's spending. Spending plans offer a way for couples to sit down and decide how to allocate money for daily needs. It's a way for couples to make choices together. You don't think that it would make you feel more amorous and sexy, but it does.

My husband and I remarried and promised not to have any more debt after being apart for more than a decade. Living debt-free has made such a difference in our ability to feel that we're funding our creative ventures and not putting ourselves in a pressure cooker.

How do you avoid going back to your old bad habits?

We keep separate checking accounts and split up the bills. He's responsible for some and I'm responsible for some. For couples in debt, I've found it's important for each partner to have some responsibility, or else it's too easy to dump it all on the other person.