Credit Card Balance Conversion - Benefits and Risks

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A credit card balance transfer is a way to move your debt to a new credit card with a lower interest rate. However, you should be aware that these offers can often come with balance transfer fees. 

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Only consider a balance transfer if the promotional 0% interest period is long enough to cover any balance transfer fees, and you can commit to paying off your debt in that time.
What is Credit Card Balance Conversion?

Credit Card balance conversion is a powerful money management feature that converts your outstanding Credit Card debt into equal monthly instalments (EMIs) that are easier to manage. This can help you pay off your Credit Card debt faster and get back on track to achieve your financial goals.

The most common reason for transferring Credit Card balances is to take advantage of lower promotional interest rates that are more friendly to your pockets. However, there are some things to consider before making a balance transfer. First, make sure you are aware of the transaction fee that varies from 1-3% of the amount you are transferring. Also, remember that promotional balance transfer rates typically only apply as long as you consistently make the minimum payments on time. Failure to do so will result in reversion to the standard rate.

Another thing to keep in mind is that a balance transfer may impact your credit scores. This is because opening a new account results in a hard inquiry on your credit report, which can cause your credit scores to drop temporarily. But, if you are able to pay off your debt quickly and improve your credit utilisation ratio, your credit scores should return to normal in the long run.

Auto Balance Conversion is a programme that allows you to convert your outstanding credit card balance* into 36 monthly instalments payable over a period of 36 months, at an effective rate of 13% p.a (CIMB credit cardholders) or at the Payable Facility Charges (PFC) rate of 13% p.a (CIMB Islamic credit cardholders). Please refer to Terms and Conditions for more details.
Benefits of Credit Card Balance Conversion

A credit card balance transfer allows you to move your debt from one credit card to another, often with a lower interest rate. It can help you pay off your debt and improve your financial health. However, it’s important to understand the benefits and risks of credit card balance transfers before you use them.

When you convert your Credit Card balance into EMIs, you will have to pay the EMI amount every month until your balance is paid off. EMIs typically have much lower rates than traditional Credit Card interest rates, which can save you money in the long run. In addition, converting your debt into EMIs can help you manage your finances by breaking down your large Credit Card payment into smaller, more manageable payments.

If you’re struggling with Credit Card debt, a balance transfer can be an effective way to reduce your interest payments and get back on track. But be sure to consider the costs of transferring your debt, including any fees you might have to pay to complete the transaction. Also, remember that you’ll need to continue making payments on any new purchases with the new card to avoid incurring additional debt.

Credit card balance transfer offers are available from many banks and credit cards, and they can provide a great way to manage your debt and save money. Just be sure to research the terms and conditions of each offer carefully to find the best fit for your needs. Some balance transfer credit cards may only allow you to transfer a certain percentage or dollar amount of your total credit limit, and others might charge an annual fee that can offset any savings you might receive.

Lastly, be sure to compare the interest rates on the new card with the interest rate on your existing Credit Card. Ideally, you should choose a card that offers 0% interest on both your transferred balance and any new purchases you make. This can help you keep your debt as low as possible and save you the most money in the long run.
How Credit Card Balance Conversion Works

Credit card balance transfers are a popular way to save money on interest charges. They involve moving existing debt to another credit card, often one with a lower or 0% interest rate for an introductory period. Ideally, it’s a good idea to pay off your transfer balance before the introductory period ends. The process of transferring debt typically takes a few days or up to a few weeks. In the meantime, you should continue to make payments on your old card.

However, the process of transferring debt comes with its own set of costs and limitations. For example, you may have to pay a balance transfer fee, which can range from 1-3% of the amount you’re transferring. Additionally, you may be limited on how much of your balance you can move from the other card to the new card, depending on the credit limit of the new card.

Furthermore, while a balance transfer can be a helpful tool, it is not a cure-all for credit card debt. You should still pay off your debt as quickly as possible to avoid paying high-interest rates on the remaining balance. Additionally, you should avoid carrying a balance on a credit card for any period of time, as this can hurt your credit score and make it difficult to get approved for new cards in the future.

In addition, balance transfer fees and introductory periods can add up over time, making it harder to pay off your credit card debt. To help ensure you’re able to afford the amount of debt you’re transferring, it’s important to compare different cards and their variable interest rates before deciding to transfer your balance.

A good alternative to a balance transfer is to convert your Credit Card debt into equated monthly instalments (EMIs). With this, you can break down your large Credit Card payment into affordable EMIs that you can pay off over a predetermined period of time. This can be an effective strategy for smart money management and can help you become debt-free in a short period of time.
How to Convert Your Credit Card Balance into EMIs

When you choose to pay through EMIs, the credit card balance is divided into a fixed number of EMIs that need to be paid over a specific time period. This helps you keep track of your payment timelines and ensure that you are making progress towards paying off the debt. However, if you earn a bonus or liquidate savings and wish to clear your credit card debt sooner than the EMI schedule, you may be subject to a prepayment/ foreclosure fee from the lender.

You can avail this facility from the card issuer or bank by logging into your net banking account and choosing the option to convert your bill into EMIs. You can choose to convert the entire billing amount or select a set of transactions that exceed a threshold amount. The EMIs will need to be paid on time to avoid late payment charges and maintain a good credit score.

Additionally, choosing to pay through EMIs will help you reduce the amount of interest that is charged on your outstanding debt. Typically, the average EMI amount that you pay will be significantly lower than the average Credit Card interest rate, saving you money in the long run.

Another benefit of credit card EMIs is that they do not affect your Credit Card history. You are free to make a payment as soon as you have the funds available, without having to wait for your next bill cycle. This makes it easier to manage your finances and prevents you from falling into the trap of revolving debt.

Having the ability to convert your Credit Card bills into affordable EMIs gives you a great opportunity to manage your financial obligations and meet important goals in life. It also works as a way to save for unforeseen expenses. However, before deciding to opt for this facility, ensure that you have the necessary financial resources and are comfortable with the amount of interest that will be charged each month. Also, keep in mind that you may lose out on reward points and discounts/ offers on your purchases if you choose to pay via EMIs.