Credit card debts and loans money lenders and financial institutions can be quite difficult to overcome especially if their interest rates are increasing every month.
However, a better way to pay off your loans can be via balance transfers.
Definition of a Balance transfer
Balance transfer is a procedure of shifting debts with high interest rates from one or extra credit cards to any other card with a decreased interest rate. It is usually similar to a short term loan that has 0% interest rate mostly offered on a credit account.
This can certainly help you with paying off your debts faster since your balance will be all combined and the payments will go through the principal balance instead of the interest rates every month.
This will allow you to put all your outstanding balance to a single account with a low or 0 percent interest rate loan. Hence, this will stop you from paying off a high interest rate and all your debts will be combined in just one account.
It will also allow you to get emergency funds and take advantage of the 0 percent interest rate or sometimes, a low interest rate if you can pay the full amount within the grace period that has been given to you.
Things that you should remember when you use Balance Transfer
It might seem to be the perfect answer to all your debts or emergency needs but this will only be effective if you are responsible with your finances. Here are some things to remember and consider when are contemplating on a balance transfer:
Fees and charges
You will usually have a 0 percent interest rate for 3 months, 6 months or even 12 months. There will just be a processing fee of at least 1 percent up to 5 percent that will be depending on your tenor and the bank itself.
There are banks that offer promotions with less processing fee. It will just depend on your researching skills on where to find them. Some banks do advertisements to let customers know of their promotions, you will just need to be patient in finding a promotion.
Your credit limit will depend on your monthly salary and will be tied up to a credit card or credit account. If you have an existing card that has a credit limit of 12,000 Singaporean dollars and you charged 2,000 Singaporean dollars to it, you can borrow a maximum of 10,000 Singaporean dollars from the balance transfer account that you have.
Fees for late payments can be as much as 60 Singaporean dollars up to 125 Singaporean dollars and that will still depend on the bank and other credit institutions. Most of the banks charge late payment fees if you will not be able to make a minimum payment required for your credit accounts.
Balance transfer will not require you to pay a fixed amount each month, not like the personal loans which you are required to make repayments in fixed amounts every month. It will all be up to you on how much to pay every month, just as long as you make a payment.
There will be a minimum amount that you need to pay every month though and this will be at least 1 percent up to 3 percent that of your remaining balance. You can, of course, make a payment that will be higher than the minimum amount so that it will be faster for you to pay off. That is if you still have extra on your budget.
After the duration period of the 0 percent interest rate, you will be charged a certain percentage of your remaining balance. It will always be nice to pay off all your balance before or within the 0 percent interest rate duration period.
Interest rate after the free period will be as high as 19 percent up to 26 percent so you better make sure to clear it all up to not incur a high interest rate.
Am I guaranteed of the 0% Interest Rate?
The answer might not always be yes. It will still depend on the bank that you are applying from. There are some people who are not qualified with the free interest rate. This is still being assessed by the bank during the application process.
Even if you have received a pre approval email from the bank, does not mean that you are guaranteed to have the free interest rate.
What can be the disadvantage of getting a balance transfer?
Getting a balance transfer can be so tricky. You may just be tempted to pay only the minimum amount every month and that will take you too much time to pay off all your debts. It will always be better to pay off what you can and not just the minimum. This will give you the benefit of paying off your debts in no time and you will be faster to be free of all your debts if you do so.
There will also be a tendency for you to spend more than what you can actually pay for. You might be tempted to use the balance transfer card to purchase items you love and find yourself into more financial trouble.
Best Balance Transfer Rates in Singapore in 2020
For 6 – 12 month balance transfers, here are the current rates being offered by certain banks:
|Bank Name||6 month balance transfer||12 month balance transfer|
|Citibank||0% p.a. + 1.58% fee (new customers)||0% p.a + 5.5% fee|
|Standard Chartered||0% p.a. + 1.5% fee||0% p.a. + 4.5% fee|
|OCBC||0% p.a. + 2.5% fee||4.98 p.a = 0% fee|
|UOB||0% p.a. + 2.5% fee||0% p.a. + 4.28% fee (exclusive online)|
|DBS||0% p.a. + 2.5% fee||0% p.a. + 4.5% fee|
|HSBC||0% p.a. + 2.5% fee||4.88% p.a. + 0% fee|
3 month and 8 month balance transfers are not included in the table because not all banks give those options.
UOB has the lowest rate for the 12 month tenure and this is just being offered in the internet platform.
For a 6 month tenureship, the lowest balance transfer rate is being offered by Standard Chartered if you apply it online. This is being offered by all the existing customers of the bank who already have a credit card with them.
Next best rate would be Citibank with a 1.58% fee but this offer is just limited to those who do not have an existing account with the bank. If you already have an account with them, you will be charged 0% p.a. + 2.5% fee.
The Difference between Balance Transfers and Personal Loans
Balance transfers will allow you to just pay the minimum amount of your borrowed fund every month and you should be able to repay in bulk by the time your repayment term ends. In personal loans, you will be required to pay a fixed amount every month all throughout the repayment terms.
Interest rate for balance transfer is 0% while personal loans can range from 3.88% to 7%. Processing fee for balance transfers range from 1.5% up to 5.5% while in personal loans, they offer 1% up to 2% processing fee.
Repayment terms for balance transfer are shorter and range from 3 months up to 18 months while personal loan repayment terms are longer and range from a year up to 5 years.
Balance transfers also can have lower repayment amounts per month because they will just require you to pay a minimum amount, it will all be up to you if you want to pay more. Personal loans will require you to repay a fixed amount every month all throughout your repayment period.
In balance transfers however, if you just pay the minimum amount for the month, chances are you will need to pay the remaining balance of the money that you borrowed which will incur an interest rate that will just depend on the credit card of line of credit that you have the funds and this can be as high as 30% per year.
Who should apply for a balance transfer?
A balance transfer can be very helpful to people with numerous debts with high interest rates like credit card debts. This will allow you to consolidate all your debts in just one account and that you will pay 0% interest rate on your outstanding debt while in the tenure period.
A balance transfer can also allow you to have funds with the credit limit that you have from the credit card. You will have quick access to cash with balance transfer too.
Do you think a Balance Transfer is for you?
You get better financial management and you no longer need to omit out on payments on so many credit card payments if you choose to consolidate all of your other banks’ credit balances into one predominant bank’s credit card or credit line.
You get to shop on interest rates whilst you do not need to pay off your credit card payments in full, as most banks would provide. Most balance transfer interest rates can be up to 18 months.
They normally charge a one time processing fee instead. So you need to pay attention to the powerful interest rate. The shorter the loan period, the better the p.a..
You can also have flexible payment options for as long as you meet the minimum monthly repayment terms. Just make sure to clear the remaining fund transfer amount by time of your due date. If you will not be able to clear the total amount, the interest rate will shoot up.
A balance transfer can help you be out of debt if and only if you will be responsible with your finances. You should be able to resist the temptations of purchasing new items because you will just end up paying more and you might not be able to keep up with the payments after you have exhausted the 0 percent interest rate period.
Do the best you can to handle your money well and pay off your credit account with what you have and not just the minimum amount every month. Try your best to get out of debts faster.
If you will be needing any assistance regarding your finances, you can check out Fortune Credit. They will provide you with the best solutions that you will need.