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How To Use Balance Transfer Credit Cards In Your Favour
This article was originally on GET.com at: How To Use Balance Transfer Credit Cards In Your Favour
Many Singaporeans might have seen the words 'balance transfer' somewhere on their credit card brochure or in a flyer sent in the envelope of their credit card bills. But did you know that the majority of people in Singapore don't really know what a balance transfer card is used for?
First of all, let's start with defining the words 'credit card balance'. A credit card balance is a debt that you carry on your credit card.
The term 'balance transfer' is not so well known in Singapore, although in other countries like the US it's very common. Here, we at GET.com we'll show you what a balance transfer card does and how you can benefit from it.
A balance transfer facility on a credit card lets users transfer the outstanding balance from one credit card (or sometimes other types of loans) to another credit card.
The facility is extremely useful when you want to consolidate several credit card balances under just one credit card so that you can focus on clearing a single debt. It's can also be used as a way to reduce your interest payments.
How Balance Transfer Cards Work
Take for instance Jane who currently has a 2 credit cards from Bank A and Bank B. She has accumulated a $5000 debt on each card.
Both banks charge an annual interest rate of 24% and a late payment fee of $50 or 3% of the outstanding balance (whichever is greater).
Using this information and calculating on an annual basis for easy reference, Jane will have to pay a total of $2400 on interest payments alone.
However, if Jane uses a balance transfer credit card like some of the HSBC credit cards, she'll get to save some money, here's how:
Balance transfer amount of $10,000
Current Interest Payments
In a 6-month period, the interest Jane accumulates on her credit card balance at Bank A and Bank B is 24% per annum, which amounts to $1200.
How Much Jane Can Save
If Jane transfers the balance held on these cards to her new HSBC's Revolution Credit Card, she'll get a one-time promotional rate of 0.8% interest p.a. on balance transfers for 6 months.
Since this offer also waives the processing fee on balance transfers above $10,000, it means that during those 6 months she will only pay $40 in interest. During these 6 months, Jane saves $1160 in interest!
As you can see from above, that's a lot of interest savings just by changing the way you pay your outstanding credit card balance!
Of course, saving on the interest payments does not mean you are out of debt. You still need to clear your outstanding amount, but using a balance transfer card definitely makes it a much more manageable process.
One important thing to remember when transferring a balance is that you should aim to pay your debt off in full before the low interest period ends.
What You Should Watch Out For
Processing Fees
Most banks charge a processing fee for balance transfers and these range between 0.8% to 3% of the principal sum.
It may look like a lot if you are intending to transfer a big sum of money. However, if you take into account the interest savings you will make when you transfer your balance, it's a small cost.
As you can see in the example above, some banks will waive the processing fee if you transfer a large balance, so make sure to look for this offer if you're carrying a large balance as it could save you a lot of money.
Tenure For 0% Interest Payments
The low-interest rate period for any balance transfer facility is usually specified by the banks.
These tenures are usually a 3-month, 6-month or 1-year period. Processing fees may differ depending on the tenure as well.
Do remember to check out the interest rates applicable after the low-interest period in case you are unable to service the debt within the specified period.
Minimum Transfer Amount
Most banks specify a minimum transfer amount, so do watch for that. Others may require a higher transferred balance in order to qualify for a lower processing fee.
Here you can see our pick of the best balance transfer credit cards in Singapore, many of them offer a 0% introductory interest rate for a certain period of time!
What do you think? Share your comments with us below!
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