If you have a large amount of credit card debt, it may seem counterintuitive to apply for another card. However, balance transfer credit cards can be a great way to lower your monthly payments and help you get out of debt.

What is a Balance Transfer?

A balance transfer means literally transferring your outstanding balance from one card to another card, typically from a different bank. The idea is to take advantage of a 0% or relatively low interest rate being offered. The advantage of having a lower interest rate is that a) you can pay less interest on your existing debt, thereby increasing the amount of principal that is being paid off and/or b) organize your financial portfolio by consolidating a few monthly payments into one single payment.

How Does it Work?

Assume that a person has AED 500 of debt on their credit card with an annual interest rate of 17.9%. They can afford to pay only AED 10 per month. The below table provides an idea of how much can be saved, depending on the balance transfer offer:

 

Introductory Rate Balance Transfer Handling Fee Savings
0% for 23 months 3.30% AED 130
0% for 22 months 2.90% AED 127
0% for 21 months 2.60% AED 122
0% for 18 months 3.00% AED 102
0% for 16 months 1.99% AED 95

The amount transferred will need to be an amount that is within the credit limit of your new card minus the balance transfer fee.

What to Watch Out For

It is always a good idea to compare credit card rates versus other providers in the market to ensure you are getting a good deal. Always read the fine print, many times the special interest rate offer (whether it is 0% or a reduced rate) may only apply for the amount that has been transferred from your previous card. In other words, a different rate will be charged on new purchases made on the card. A balance transfer credit card can be a useful tool to get out of debt, so it defeats the purpose if it is utilized to incur additional debt.

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