Balance transfers 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 that the interest keeps piling on when you don’t pay your bills on time. The more time passes, the more difficult it is to clear your debt.
With a 0% interest balance transfer loan, you can move your credit card balance onto another credit card, and pay off your debt at a lower interest than what you’re currently paying. With prudent use of balance transfers, you can save yourself hundreds of dollars in credit card interest, and get out of debt quicker.
Here is a quick guide to bring you through how a balance transfer can help you get out of existing credit card debt.
Best Interest-Free Balance Transfer Loans
|Lowest Processing Fee 0% Balance Transfer Loans|
|6-month tenure||12-month tenure|
|Standard Chartered Credit Card Funds Transfer||0% interest rate with|
0.9% processing fee (EIR 1.85% p.a.)
|0% interest rate with|
4.5% processing fee (EIR 4.86% p.a.)
|HSBC Balance Transfer (Personal Line of Credit)||0% interest rate with|
1.5% processing fee (EIR 3.26% p.a.)
|4.88% p.a with|
no processing fee (EIR 4.88% p.a.)
|DBS Balance Transfer||0% interest rate with|
2.5% processing fee (EIR 5.34% p.a.)
|0% interest rate with|
4.5% processing fee (EIR 5.2% p.a.)
* T&Cs apply
How Can a Balance Transfer Help You With Credit Card Debt?
A balance transfer comes in two forms: a credit card or a credit line. They work similarly.
Basically, you can take all the outstanding balance on your credit cards and personal loans and transfer it to a single 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 and charge a one-time transaction fee of 1% to 5% for the transfer. This is how the effective interest rate (EIR) is derived.
Take advantage of this 0% interest grace period to pay off the full amount you’ve borrowed because once the grace period is over, the interest rates snap back up to to 16% to 26% – not much different from the credit card rates.
If you can’t afford to pay much, try to at least pay the minimum sum on your monthly statement (around 1% to 3% of the balance or S$50, whichever is higher) to avoid paying any late charges.
How Much Can You Save With a Balance Transfer?
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%:
|Credit card interest 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 for 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: you can save hundreds of dollars in interest with a balance transfer if you pay off the full loan amount within the 0% interest grace period.
Compare and apply for the lowest interest balance transfers on SingSaver