A balance transfer can be helpful if you have accumulated a significant amount of credit card debt and want to consolidate the debt into one account through a balance transfer loan. Many Singapore banks provide their customers with balance transfers to help settle unsecured loans and credit card debts, majorly at a lower interest rate. This, in turn, helps you pay your debts in a more affordable option and short tenure, reducing debt increase.
Whenever you choose to go the balance transfers way, always remember to engage an expert so that you get tips and knowledge on debt management and eliminate risks. Below we delve more into balance transfer, Investopedia and Forbes Advisor tips, and best rates, among other topics.
What is Balance Transfer?
A balance transfer is mainly a short-term low-interest loan of 0 %, mainly given to your credit line account or a credit card in Singapore to help you clear outstanding debts.
It is a valuable option in helping you have flexible repayments within a short tenure. Balance transfers usually require you to pay a one-time processing fee, and from there, you have to settle what you own in the lending institution in 3 to 18 months at a 0% interest rate. In other words, it allows you to transfer the remaining amount on your credit card to another credit card to clear debts.
How Does it Work?
How a balance transfer works is simple: transferring your mounting credit card balances into a 0% interest account. It also allows you to lend from the available credit limit of your recent credit card account or credit line.
With the best balance transfers, you must understand that the repayment schedule is much shorter than when using personal loans. Its repayment plan is from 3 months to 18 months. It usually allows you to pay in installments. Still, you must ensure you settle all the debts you owe the bank at the end of any repayment period. The balance transfer loans usually last 12, 6, and 3 months.
Example Scenario:
For instance, you owe a bank $ 10,000 and have decided to opt for a 6-month balance transfer. This implies your minimum payment should be 1%, equivalent to $100 for each month. You will have to pay $9500 on the 6th month to settle the outstanding balance.
A balance transfer loan is an excellent option if you have a good cash flow or even if it’s tight, you are confident that you will get a large amount of cash, especially in the last month of the repayment period, so that you settle all the debt.
Also, it’s vital to note that the best balance transfer is mainly given to new customers who specifically have got a credit line or Find the Best Credit Card at a Bank. It implies that existing customers that have already opened a credit card account with a bank are limited to getting a new balance transfer loan.
Most balance transfer loans usually take five working days to be processed after the approved loan amount.
Benefits of Balance Transfers
Here are several benefits of balance transfers, according to Investopedia and Forbes Advisor.
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Debt Consolidation
You get a chance to consolidate your existing debt. You can merge all your debts into one balance transfer credit card. This reduces the need to make many monthly repayments.
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0% Transfer Rate
You can freely transfer all your outstanding balance at a 0% transfer rate. You only have to pay a low processing fee. This helps you save interest money since your introductory 0% APR is fixed for a certain period.
“In most businesses, the cost of acquiring a new customer is high. Credit card companies are willing to pay that cost through advertising their 0% APR cards and then allowing the use of the promotional APR for a limited time,” says certified financial planner Colin Drake of Marin Financial Advisors in Sausalito, Calif.
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Lower Credit Utilization
A balance transfer can increase your credit score by decreasing your credit utilization rate. Credit scores usually see a lower credit utilization rate as a way of responsible credit management.
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You Get a Short Term Loan
Most balance transfers in Singapore contain periods of 6 to 12 months of repayment. It allows you to settle the loan faster. After the period elapses, interest will increase, like credit card interest rates.
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You Experience Flexible Payments
A balance transfer loan lets you pay even a minimum payment of 1%, and also you can pay more if you have the remaining balance at hand. You have 12 months in Singapore to pay your balances. It does not have fixed monthly repayments like personal loans.
Key Considerations Before Making a Balance Transfer
One way to settle your emergency expenses or credit card debt is to opt for a balance transfer. This can be beneficial if you do it correctly. Robin Saks Frankel, an author at Forbes Advisor shares key considerations before making a balance transfer. Have a look:
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Assess Your Existing Debt
You have to review and assess your existing credit cards that have debts. Remember to put down the amount you owe each and their respective interest rates. Your APR and interest rate are usually the same concerning credit cards.
To find your credit card’s APR, check your monthly statement. Remember, your mission is to transfer the debt to a card with a lower or 0% interest rate.
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Know Where to Move the Debt
Have a potential card to shift your balance to. Decide if you want to work with the 0% APR balance transfer offer. If you have an account that has a lower APR, you can consider that rather than getting a new credit account. You stand a good chance if you have a good credit history with your card.
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Analyze the Offers on the Cards
If you want to work with the 0% APR balance transfer offer, you will have to compare it with other cards and get a card that will assist you in saving the most money generally. Not all cards with 0% interest rate function the same. You may find others imposing interests on new purchases while others may not.
Also, you need to evaluate the offer length. Consider the period stated for any introductory balance transfer offers. Remember, the promo period may defer between various cards.
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Consider Your Top Picks
Perform the transfer fee math. You may find most balance transfer fee charges ranging from 3% to 5%. Ensure you incorporate the charges on the card comparisons to determine if you will save money by performing a balance transfer.
Also, read the fine print and know of the transfer deadlines. It would help to make the minimum monthly repayment before the promotional APR expires.
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Apply For a New Card
The procedure of getting a balance transfer credit card is usually the same as when applying for your existing credit card. You only have to give some basic information about your birth date, social security number, income, and housing, among other monthly expenses.
You must also know your credit score before getting a new balance transfer credit card. Remember, your expectations should go in hand with your qualifications.
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Have a Repayment Plan
It would be best to have a payment plan based on the months you have been given to pay off all the balance transfer debt. You should take advantage of the interest-free period and settle what you owe the bank.
Best Balance Transfer Rates
Here are the best balance transfer rates in Singapore as of June 2023:
|
NAME OF THE BANK ACCOUNT |
PREVAILING INTEREST RATE | PROCESSING FEE | TRANSFER RATE |
|
Standard Chartered Credit Card Funds Transfer |
26.9% | S$150 | 0% |
|
HSBC Personal Line of Credit Transfer |
18.5% | S$150 | 0% |
|
DBS Balance Transfer |
25.9% | S$250 | 0% |
|
POSB Balance Transfer |
25.9% | S$250 | 0% |
|
MayBank Credit Card Funds Transfer |
25.9% | S$138 |
0% |
| Citibank Balance Transfer-New Customers | 20.95% | S$158 |
0% |
| MayBank Fund Transfer for Creditable Customers | 19.8% | S$178 |
0% |
| UOB CashPlus Funds Transfer | 17.95% | S$250 |
0% |
| OCBC Funds Transfer | 19.98% | S$250 |
0% |
| UOB Credit Cards Balance Transfer | 25% | S$338 |
0% |
Strategies & Tips for Maximizing Balance Transfers
Mountain Credit Union, a Federally Chartered credit union, highlights several strategies and tips for maximizing balance transfers.
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Check Your Credit Score
It’s advisable that you know your credit score before opting for a balance transfer. With a great score, you can get good deals. If you want an overall idea of your credit score, you can visit your preferred bank mobile app.
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Know the Balance Transfers Rates
The purpose of a balance transfer is to help you save money because of the lower interest rate you get. Paying too much transfer fee may make you incur a lot of unnecessary costs. That’s why it’s advisable you compare the fees you will be paying and the amount you stand to save before you perform a balance transfer.
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Ensure You Understand the Terms and Conditions
It’s vital to understand that terms and conditions usually vary from one card to another. Ensure you read the details to see you are using your card correctly. It would be best if you evaluate what your APR is. A card having 0% APR, specifically on a balance transfer amount, does not imply the 0%APR is also on purchases.
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Establish a Repayment Plan
After transferring balances to another card, it’s time to plan how you will settle the approved loan amount. Most Singapore banks allow you to enjoy an interest-free period of 12 months. It implies determining how much you will pay monthly across the loan tenure.
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Make all the Payments on Time
Payment history may negatively or positively affect your credit score. Late and missed payments may drag you back on your payment plan and incur more interest fees that you have not planned for. Additionally, late payments affect the 0%APR that helped you get the card.
Depending on the card, you may get a penalty APR which usually may make your APR disappear. You may also have to pay late payment fees. To avoid such, make monthly repayments on time throughout the repayment period and always go through your card agreement to know the consequences of missed or delayed repayments.
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Keep Your Original Card Even After Balance Transfers
After transferring balances to a new card, don’t close your other credit card account. It reduces your credit history, negatively affecting your credit scores. Even if you are not using it, keep your credit account active.
Common Mistakes to Avoid
According to Community Federal Credit Union, here are common mistakes to avoid when dealing with balance transfers:
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Not Defining Your Financial Priorities
A balance transfer is mostly seen as a financial strategy. Wherever you go through your expenses and income, you need to analyze if you want to minimize the debts or settle them all quickly. Settling your credit card balances enables you to save your money from interest charges.
You have to examine how settling your balance transfer debts goes in with your financial obligations.
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Failing to Calculate Your Potential Savings
Before you settle for a balance transfer, ensure you consider your potential savings. Using a lower interest rate card will help you save with your balance transfer.
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Using Your Old Credit Card for Every New Purchases
Resist the need to use your old card for every new purchase you make. Know why you are transferring your balances and avoid any new expenses at all costs.
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Not Meeting the Payment Due Date
Most cards offer a shorter repayment schedule and a 0% APR introduction. If you miss the payments or deadline, you may end up paying higher APR fees than usual. That’s why you must go through all the terms and conditions and be confident you can meet them all. Ensure you stick to the repayment period to avoid multiplying your loan amount.
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Closing Your Old Card
Please do not close your old card when you settle a credit card using a balance transfer. Let it be active so that it reflects on your credit report. You also don’t want your credit score to be affected, and the best way to achieve this is to let your credit card be open.
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Not Having a Debt Reduction Plan
Not having a debt reduction plan can delay payments and even miss repaying your debts. You can divide the money owed by the months on the introductory duration. It will help you know the total amount you will have to pay monthly to enjoy the 0% interest rate on the agreed period before the regular APR comes into play.
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Failing to Understand Balance Transfer Details
You need to understand terms and conditions may differ from one card to another. Failing to understand what your APA is may make you spend more.
You need to understand that your card having 0% APA may not imply that it also caters for new purchases. Do not apply your credit card balance transfer on new purchases. Also, remember to check fees linked to transferring balances so that you know how much you will spend.
Read Also: Secured Credit Card Singapore and Effective Interest Rate vs Nominal Interest Rate
Related Questions
1. When Is it a Good Idea to Balance Transfer?
The best time to perform a credit card balance transfer loan is when you have a good credit score, a repayment plan, and only a few debts since that can overwhelm you, and you have read and understood the terms and conditions.
2. Do Best Balance Transfers Hurt Credit Scores?
Best balance transfers do not hurt your credit score since they assist you in paying less interest and clearing your debts on time. However, frequently opening new credit cards while transferring balances to them may negatively affect your credit scores.
3. What Is the Downside of a Balance Transfer?
Credit card balance transfer loan downsides include you pay a one-time processing fee; you are subjected to pay a higher interest rate if your loan period is over, and you still have outstanding balances. Also, you risk falling into much greater debt.
Closing
Balance transfers may be your way out if you have an increasing debt. It is a short-term interest loan provided on a credit line account or credit card to pay off outstanding balances at 0% interest. Besides giving you a 0% interest rate, a balance transfer loan helps you enjoy a short-term loan and utilize flexible repayment plans than personal loans.
Key Takeaways
- A balance transfer is mainly a short-term low-interest loan of 0 % given to your credit line account or a credit card in Singapore to help you clear a remaining balance.
- The benefits of balance transfers are that you enjoy a 0% interest rate, get a short-term loan, and experience flexible repayment options better than personal loans.
- Before opting for balance transfers, consider your credit limit, minimum repayment sum, processing fees, and the interest-free period.
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