Credit Card balance transfer is the best thing to happen to our wallets since the invention of credit cards itself. It is most useful when you want to rid yourself of credit card from the highest interest charging cards and consolidate them with all your credit line debts under a single bracket. The balance transfer facility allows you to transfer your credit card debt from your high interest cards to your lowest interest cards, thereby decreasing the overall amount you will be paying in the form of interest on all your cards.
The following is what you need to know about credit card balance transfer before you decide to apply for it:
A credit card balance transfer is a method of paying off your existing credit card debt by transferring the balance from one credit card to the credit card of another bank/financial institution. You can transfer any amount up to your credit limit onto the card you wish to use this facility for. Balance transfer is becoming increasingly common in the present day scenario where credit card issuers are offering a range of incentives to attract new customers to avail this facility.
Balance Transfer on Credit Cards (12 months)
The table given below illustrates some of the key banks and their Balance Transfer plans on credit cards:
|Card name||Effective interest rate||Processing fees||Minimum payment required||Interest after grace period|
|OCBC Credit Cards||4.99%||4.50%||3% of the bill balance or S$50, whichever is higher||25.92% p.a.|
|HSBC Credit Cards||6.77%||S$88||3% of the bill balance||25% p.a.|
In the below table, an illustration of some banks and their Balance Transfer plans on credit lines is given:
|Balance Transfer on Credit Lines (12 months)|
|Product name||Effective interest rate||Processing fees||Minimum payment required||Interest after grace period|
|DBS Cashline||7.12%||6.38%||2.5% of the dues||19.8% p.a.|
|UOB CashPlus||5.06%||4.5%||2.5% of the dues||19.8% p.a.|
|Citibank Ready Credit||3.6% (for 6 months)||1.58% (for 6 months)||3% of the transfer amount or S$45, whichever is higher||19.95% p.a.|
Top banks in Singapore are offering their balance transfer facility at 0% interest for a promotional period ranging between 6 months and 1 year. During this period, you will not be charged any interest on your payments under this facility.
What you must note here is that most banks offer their 0% balance transfer facility to customers who have good credit scores. Therefore, to enjoy the interest free period on the balance transfer facility, you might have to maintain an above average credit score. However, the actual terms and conditions pertaining to the eligibility for the 0% balance transfer varies from bank to bank.
One of the best reasons (apart from low interest rates) to choose balance transfer for your credit card debt is that you can consolidate all your debt onto a single card and make 1 payment every month. This saves you the time and energy to compile and compute how much you owe at the end of the month on all your credit card purchases made from the multiple cards you own.
If you are someone who pays your own bills every month, you can understand the hassle involved in keeping tabs on all the different bills that pile up outside your doorstep at the start of every month. Missing payments on account of negligence can adversely impact your credit score even if the reason is as simple as you forgot the bill existed or you thought you paid it already. Missing a payment/making a late payment whether you forgot or you were avoiding it will have the same impact on your credit report.
Therefore, when you transfer all your debt into a single card through a onetime application to use the facility, you don’t have the need to monitor your bills anymore. You will receive a single bill comprising of all your payments and you just need to pay 1 bill with 1 payment. It doesn’t get easier than this.
When speaking of balance transfer, it is not restricted to the transfer of credit card debt to another account. You can even transfer your debt from any and all outstanding loans as well. This will allow you to save plenty on interest payments because you will be charged the same interest on all your payments.
You may have come across the promotional offers offered by most leading banks and financial institutions in Singapore offering 0% balance transfer facility to customers. Although this offer seems too good to be passed on, what you must know is that there is a separate fee involved when using balance transfer. For each balance transfer that you make, you will be charged a balance transfer fee (processing fee) which is separate to the interest charged. Therefore, if you are enjoying the promotional 0% balance transfer facility on your card, you will still be charged a balance transfer fee for your transactions during this period. This fee, however, will depend on the amount of transfer involved, typically ranging between 1% and 3% of the transferred amount. So, the more amount transferred, the higher the fee charged.
The 0% interest rate for your balance transfer is more often than not applicable only on existing purchases and transfers made. Any purchases that you make once you have transferred your balance from various credit cards onto a single card may not be applicable for the promotional rate offered by the bank. Therefore, it is advisable to read the terms and conditions for the promotion that the bank is offering you before you start using this card for all your purchases assuming you are enjoying the same rates as your transferred balance on this card. There are some banks, however, that charge a higher APR (Applied Percentage Rate) and make the promotion applicable even to new purchases. All the terms and conditions concerning the promotional rates of balance transfer may not be communicated to you, thereby making it your responsibility to read them carefully before you put your signature on the application.
If the promotion offered does not extend to new purchases made on your card after availing the balance transfer facility, there is a possibility of being charged with dual interest rates. It is advisable to avoid making new purchases on your card at least after the elapse of your promotion because you will be charged a lower interest rate on your existing purchases and a higher interest rate on your new purchases not included in the balance transfer. Therefore, you will be paying 2 separate interest rates. As the interest rate will vary for existing and new purchases, it is better to avoid making new purchases until you clear your balance transfer debt.
As you will be charged 0% interest during the promotional period of using balance transfer, it makes sense to clear as much debt as possible during this interest-free period. However, you will have to make sure that you can pay the service/processing fee for the transfer. Even with this fee you will save significantly during the payments made during the promotional period because you will also be charged interest along with this fee after the promotional period expires.
Unlike other lines of credit, in a balance transfer you do not need to pay a fixed amount each month. Similar to a credit card, you will have an outstanding amount due and a minimum payment that you need to make. You can decide how much you wish to pay. However, if you do not at least pay the minimum due, you will incur a late payment fee which can range anywhere between S$60 and S$130 (give or take a few dollars).
It is very tempting to simply switch banks after your 0% interest promotion on your balance transfer with the existing bank elapses. This way you can continue enjoying interest free payments on your balance transfer. However, doing so will damage your credit score significantly. This is mainly because you will continue to have open low interest accounts but your overall debt will not decrease. This will make all future potential lenders see you as a risk because you are opening multiple balance transfer facilities but you are unable to contain your overall debt. With this reflecting on your credit report and crippling your credit score, it will make it extremely difficult for you to get approval on any banking product or service in the future.
Upon the elapse of the introductory/promotional offer you will be charged with the actual interest rate of your credit card + the balance transfer fee. Therefore, pick a credit card with the lowest interest rate charged instead of just any random card thinking you are charged a 0% interest anyway. It might save you a couple of bucks initially but cost you plenty when the ‘honeymoon period’ on your balance transfer facility comes to an end.
In the end you must understand that a balance transfer is not a shortcut to ridding yourself off your debts. Transferring your debt and actually repaying it are 2 separate things. Balance transfer can help you save on interest by transferring debt from your high interest credit lines. However, it does not actually rid you of your debt. Your debt will be repaid only when you start making payments even after the balance transfer. You can repay your debt faster if you make full outstanding payments during the promotional period where no interest will be charged and you will be paying less and saving more in the long run.