Cash woes? A personal loan to the rescue!

    Balance Transfer vs Debt Consolidation Plan

    Credit card debt can be a major financial burden for many Singaporeans. If you have spent over credit your limit, you might find yourself in the vicious cycle of debt and repayment. With the credit card bills piling up every month, many Singaporeans look for other options to break out of debt. Two of the common ways are balance transfer and debt consolidation. Though both are used to manage debts, they are different in many ways.

    Balance Transfer

    Transferring balances from multiple credit card issuers to a single one is called balance transfer. A balance transfer is usually done to get a breather when it comes to interest rates. Most banks in Singapore offer a limited interest-free period after you transfer, usually starting from 3 months and up to 12 months. However, note that other fees such as processing fees will be applicable. After the interest-free period, your payments will start accruing interest. Popular banks in Singapore offering balance transfer include HSBC, Citi, DBS, POSB, UOB and OCBC among others.

    Things to consider before transferring credit card balance:

    • Do your research and find a credit card issuer offering a lower interest rate than your existing provider.
    • It is advisable to make higher payments during the interest-free periods to save on interest payments.
    • Take note of the other rates like the Effective Interest Rates (EIR) which includes other service fee by the bank like the administration fee.
    • The rates might be different for existing banking customers and new banking customers.

    Debt Consolidation Plan

    Debt consolidation plan (DCP) consolidates all your unsecured debt into a single plan at low interest rates. Leading banking institutions offer debt consolidation plans to customers with long loan tenures (up to 8 years). You will have the convenience of making low monthly payments to a single bank instead of multiple payments month-on-month at varying rates.

    Things to consider before signing up for DCP:

    • You are eligible for a debt consolidation plan if you are a Singaporean or a Permanent Resident having an annual income of S$20,000 to S$120,000.
    • However, secured loans are not eligible to be combined in a debt consolidation plan. Therefore loans like renovation loan, medical loan, and education loans among others will be excluded from the plan.
    • You cannot partially consolidate your unsecured debt under this scheme. Once you apply for DCP, all your unsecured credit lines will be consolidated.
    • In case the amount approved by DCP is not sufficient to pay off your bills, you will have to pay the difference yourself.
    • Once your DCP application is approved, all your existing unsecured credit lines will be closed and you will not be eligible to apply for new credit lines until you start paying off your debt. You will however get 1x revolving credit to manage your finances.

    Though both balance transfer and DCP are useful financial tools to manage debt, your selection of a method is completely dependent on your current financial situation.

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