Got credit card debt in Singapore? Here's how to neatly - and legally - avoid the high interest rates.
Credit card interest rates are among the highest you’ll encounter - 24 per cent per annum on average. That can cause even small debts to snowball out of control in a few months.
So if you currently owe money on your credit card, you’ll probably want ways to avoid paying interest. Here’s how to do it:
Method 1: Repay Your Balance in Full By the Next Billing Cycle
If you make full repayment on the amount you owe, the interest rate of the credit card becomes irrelevant. 24 per cent of zero dollars is still zero dollars.
In order to do this, you must repay the full amount charged to the card, before the end of the billing cycle. This cycle is usually 27 to 31 days - you can call the issuing bank to find the exact day on which your billing cycle ends.
For this reason, we at SingSaver.com.sg always remind to you use your credit card as a mode of payment only. Never leave a balance for interest to accumulate.
Method 2: Get a Credit Card with an Interest-Free Period, and Repay it On Time
Some credit cards have an interest-free period, usually three to six months from the date of approval. If you can use the card and repay the full amount within this period, you won’t be charged interest.
However, note that the interest rate reverts to normal at the end of the promotional period. As such, you should not incur debts that you cannot repay within the given time.
Method 3: Use an Interest-Free Balance Transfer
Say you owe S$5,000 on your credit card. The interest rate is 24 per cent per annum, or around two per cent per month. You don’t want to pay the interest, so you find a six-month interest-free balance transfer like the Citi Ready Credit Balance Transfer.
Through the balance transfer option, you borrow S$5,000 to pay off the credit card in full. There is an administrative fee, of 2.5 per cent of the amount (S$125) This means you would end up owing S$5,125 in total. You can repay this in three months without incurring further interest.
In addition, repayment is flexible. For example, you could repay S$2,000 on the first month, S$1,000 on the second month, and S$2,125 on the last month. The only requirement is that you must repay at least S$50 a month.
If you paid the regular credit card rate, you would face interest of two per cent per month. After six months, you would have repaid around S$5,630. The balance transfer would have saved you around S$505.
Method 4: Use a Personal Instalment Loan
A personal instalment loan typically has an interest rate of just six to eight per cent. As such, you can avoid the high interest rates on a credit card by “converting” your debt to a personal loan.
This involves taking a personal loan to pay off the credit card in full. It is fairly similar to Method 3, the balance transfer. However, there is an important difference. With personal instalment loans, you will have to repay a fixed amount every month. A balance transfer lets you repay as much as you want to each month.
As such, personal instalment loans are better for disciplined borrowers, who don’t mind the fixed monthly repayments. You can find cheap personal instalment loans on SingSaver.com.sg.
Method 4: Use a Credit Counsellor, and Speak to the Bank to Restructure Your Debt
This is a method of last resort, and should only be used in dire circumstances (e.g. you have been retrenched and will be unable to repay your debts). You can seek the help of a Credit Counselling Singapore (CCS), and restructure your repayment.
In some cases, the bank will suspend the interest or partially write-off the debt. However, this should not be done lightly, as it will damage your credit score. This will affect your ability to get critical loans in future, such as a home loan or car loan. It is, however, better than not repaying your debt at all.
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