If you use your credit cards solely for the purpose of attractive cashback returns or collecting points and miles, then it’s time to learn about another incredible feature – the Balance Transfer.
The usage of credit cards must come with discipline, and we absolutely recommend spending within your means and paying your debts on time. But, what about those one-off instances where you can’t avoid signing off on a large expense, and don’t have enough liquidity to pay back in full the following month? Read on to find out how you can manage this with minimal cost.
What’s a Balance Transfer anyway?
A balance transfer is the transfer of an amount of money that you owe on one credit card to a new credit card account with another bank. Many banks in Singapore offer a balance transfer as a feature, and here’s what you need to know.
Interest-free for a limited time
The reason why a balance transfer is an attractive option to manage short-term debt is because many banks today offer a 0% interest rate for a period of time (e.g. 6 months or 1 year) to attract new customers. Hence, you avoid paying the hefty 24-25 % interest rate that most credit cards charge.
Is it really, really free?
Well, nothing is completely free, of course. You do have to pay a processing fee, and this varies according to the bank as well as the tenure period. It typically ranges between 2% to 5% of the transferred amount.
However, take note that once the interest-free period is over, the usual interest rate of the credit card will apply.
You can combine multiple credit card debts.
For those who have a hard time managing your credit cards, you can consolidate your multiple accounts into a single one. This lets you have a clear and painful overview of all your credit card debt, and also lets you manage it easier without the different clauses, repayment due dates, and repayment minimum amounts.
How much can you transfer?
Some banks have an upper limit on the transfer amount, and it varies according to the bank. This could be in the form of a percentage limit, an absolute dollar limit, or both. Typically, the percentage limit that applies will be 95% of the total available credit limit of the credit card that you apply for, though you may check with your bank if this is negotiable.
Also, some banks have a minimum transfer amount requirement, and this can be anywhere in between S$500 to S$1000.
How much do you save?
A significant sum.
Assuming you have a credit card debt of S$20,000 after a particularly expensive holiday, wedding, or some other completely justifiable reason. With a 0% interest rate of 6 or 12 months, this is your approximate savings.
What should you consider when applying for a balance transfer?
A balance transfer is indeed a very attractive option, especially when bank promotions of 0% interest are not hard to come by. However, there are a few important things to remember when deciding upon this option.
- Short-term vs Long-term
Have a good honest look at your finances and ability to pay back. If you are very confident that you can pay back your balance transfer amount at the end of six or twelve months, then it would be no-brainer option.
If a 12-month period is not a possible time frame, then perhaps consider doing a balance transfer for part of your debt according to your payback ability, and then taking a personal loan for the remaining amount. Personal loans are not a bad option, as many offer a much lower interest rate than credit cards (e.g. some as low as 5-6%), and you can pay back over a few years.
- Discipline applies
A balance transfer, even at 0% interest rate, is no excuse to continue spending in an unsustainable way. Remember that late payment charges do apply, and the prevailing interest rates of 24% or higher hits you once your honeymoon promotion period is over.
Banks that currently offer a 0% Interest Balance Transfer
Here is a non-exhaustive list of banks that offer an interest-free balance transfer.
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