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Having several credit cards could lead you into a debt trap. If you miss paying your bill in total for one or two months, banks charge a heavy interest rate of 23% to 29% on the balance. If you’re in the habit of paying only the minimal amount required, then you’re adding to the interest charges and delaying your principal payment. One of the ways of managing debt is through balance transfer.
Banks allow you to transfer balance on credit cards or lines of credit from one bank to another, or from one card to another. You can transfer not just one but multiple credit cards/lines as long as you meet the eligibility criteria of the card or credit line you’re moving the balance to.
Balance Transfer plans usually involve a certain period – 3 months, 6 months or 1 year – during which either a 0% applied rate or a very low effective rate is charged. So if you have incurred a huge amount on a credit card, you could transfer the balance to another bank which offers a balance transfer offer. This gives you a breather of a few months, and you may be able to clear off your dues faster or with more discipline.
There is, however, a one-time processing fee when you transfer your credit card balance to another bank/card. If you are unable to pay it at the time of transfer, it will be compounded and you will have to pay it later.
The three scenarios in which opting to transfer your credit card or credit line balance makes sense are:
Even though banks may call it an “interest-free” period, you still have to pay the administration charges. Apart from that, you can easily avoid late payment fee and interest rates if you diligently pay the money back before set the date of repayment.
Experts may advise you against balance transfer, as it may hurt your credit score. The more you borrow money, the higher the chance of your credit score going down. If you are using more than 30% of your credit limit, then your credit score will take a toll.
When you sign up for a balance transfer facility of any bank, you might end up paying more interest rate if you have not opted for it during a promotion. This means that instead of saving, you are losing money. Look out for promotions by banks before opting for a transfer.
Calculate how much time you would need to come out of debt. If it requires more time than offered by the card you’re transferring the balance to, you will need to reconsider your choice. Be careful of not using the extra credit limit that comes with the new credit card. This could put you in a greater pool of debt.
Here are the interest rates for a tenor of 6 months, offered by a few banks in Singapore:
|Name of the bank||Effective Interest rate (p.a.)||Processing fee|
You can transfer your balance from one card/bank to another by visiting the official website of the card you want to move to. Once you submit the required documents, an executive will get in touch with you to obtain further information. Your application will then be processed and reviewed by the bank. You can also go to any branch in Singapore and apply.