Balance transfer can lower your outstanding debt from credit cards or personal loans – but only if you take advantage of them.
The thing about credit cards and personal loans is the interest keeps piling on when you don’t pay your bills on time. The longer the time passes, the more difficult it is to clear your debt.
With a balance transfer loan, you can move your credit card balance onto another credit card to pay a lower interest than what you’re currently paying. Make use of it to save yourself hundreds of dollars and get debt free quicker.
This guide will bring you through how you can benefit from balance transfers when you have existing debt.
Best Buy Longest Interest-Free Balance Transfer
|Longest 0% Balance Transfer Credit Lines with lowest processing fee|
|Processing Fee (%)||Annual Interest Rate (%) after Interest Free period|
|OCBC EasiCredit Balance Transfer||1.68%||19.98%|
|Citibank Ready Credit Balance Transfer||2.00%||17.94%|
|DBS Cashline Balance Transfer||2.50%||19.80%|
How Can a Balance Transfer Help You?
A balance transfer comes in two forms: a credit card or a credit line. They work similarly.
Basically, you can take all your outstanding balance on credit cards and personal loans to transfer it to your balance transfer account. In this account, you’ll pay a much lower interest rate than what you’re currently paying, or have a grace period where you pay 0%.
Most banks in Singapore offer a 6 to 12 month grace period. Instead, they charge a one-time transaction fee of 1% to 5%. Take advantage of this time to pay off the full amount you’ve borrowed. After the grace period, the interest rates go back up to to 16% to 26%.
If you can’t afford to pay much, try to pay the minimum sum (around 1% to 3% of the balance or S$50) that you’ll find on your monthly statement to avoid paying any late charges.
If you have an outstanding balance of S$10,000 with a bank that charges 25% per annum. A balance transfer that has a 6-month grace period with a transaction fee of 1% can save you:
|Interest with bank of 25% interest p.a. for 6 months||S$10,000 X 25% X 6 months= S$1,250|
|Balance transfer 0% interest p.a. for 6 months||S$10,000 X 0% X 6 months= S$0|
|Balance transfer 1% transaction fee||S$10,000 x 1%= S$100|
|How much you save in 6 months||S$1,250 – S$100= S$1,150|
However, keep in mind that banks charge other fees on top of the transaction fees. A good way to see how much you’ll have to pay is to look at the effective interest rates (EIR) instead of the flat interest rates.
The Key to Utilising a Balance Transfer
The primary reason of doing a balance transfer to a new credit card or credit line account is to clear off your outstanding debt.
While the new credit card or credit line account allows you to borrow more, avoid doing so until you’ve cleared off all your debt. You may end up paying a lot more once the grace period ends and the prevailing high interest rate kicks in.
Just remember this one rule: with a balance transfer account, you can save hundreds of dollars if you use it to pay off your existing outstanding debt within the grace period.