Do you want to consolidate your debts and save money on interest costs? A balance transfer can offer you an introductory low or 0% interest rate when you move what you owe from one card issuer to a new line of credit, helping you to pay off your debt faster.
Use this guide to learn about how balance transfers work and what you need to know to make an informed choice when looking for a balance transfer promotion in Singapore.
A balance transfer is when you move existing debt from one credit account to another. People do this in order to reduce their interest payments or help consolidate debts into one manageable monthly payment.
How exactly does a balance transfer work?
Let’s say you have debt on a credit card with a typical interest rate of 25%. The repayment amount can add up fast, meaning it’s harder to keep up with your payments. By moving this balance to a 0% deal with a new personal loan or credit card, you wouldn’t need to pay interest on your borrowing until the introductory rate ends. In Singapore, this could be for as long as 12 months. As long as you pay off the credit line in full before the 0% introductory deal expires, a balance transfer works a bit like a loan you don’t pay interest on.
You can typically use up to 90%-95% of the available credit limit of your existing credit line towards a balance transfer. Most balance transfers accept debts from other card issuers as long as they are issued by different financial institutions.
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Balance transfer promotions: how to apply
Most of the big banks in Singapore offer a balance transfer promotion at 0% for a stated period, usually between three and 12 months. To take advantage of the promotional interest rate, you’ll need to request a balance transfer when you apply for a new line of credit.
In most credit card applications, you will find a section that asks whether you would like to shift existing debt onto your new account. You will be asked for details of your existing credit card debt, including where it’s from and how much of it you want to transfer to the new card.
If your application gets approved, your debt may be automatically moved over to your new account after you activate the new credit account. But do check – as you may need to ensure any debt is switched within a certain time period. Always check the terms and conditions to ensure you fully understand the offer before you sign up.
Must Read. Before you apply for a balance transfer, make sure that you have selected a new line of credit from an issuer that accepts transfers from your current bank and account.
Should I close my credit card after a balance transfer?
It’s important to contact your current issuer to find out exactly what you’d need to pay back on your existing account – and by when – before it can be closed. This is important because the final payout figure might be different from the balance that appears in your account statement due to various charges, such as interest payments, annual fees or outstanding direct debits.
About balance transfer fees
The majority of balance transfers charge a one-off balance transfer or processing fee. This charge is usually calculated as a percentage of the amount of the debt that you transfer to the new account.
Typically the balance transfer fee is between 1% and 5% of your debt balance you transfer, depending on the repayment term. For example, if you have a S$5,000 debt which you want to transfer, and the fee is 3%, your transfer fee will amount to S$150.
When it comes to a balance transfer promotion, be aware that if you fail to repay your entire debt before the promotional period ends, you’ll have to start paying interest. Keep an eye out for the new account’s ‘revert rate’ of interest. Also, be aware that you may even have to pay a cash advance rate after the 0% period ends. Read our guide for more information on how cash advance rates work.
So, be sure to look for the following:
Reverting interest rate. The promotional rate for your balance transfer is locked in, so you won’t have to pay higher interest rates during the offer. When the promotional offer ends, a higher revert rate will apply to any remaining debts. This is called the reverting rate. If you want to save on interest costs, go for a card with lower reverting rates of interest, especially if you will be unable to complete repayment during the interest free promotion period.
Minimum payments. Even if the card offers a 0% balance transfer rate, you will still have to make the minimum payment each month. If you only meet the minimum repayment, you won’t pay off the entire debt before the promotion ends. Once the promotion period ends, any remaining debts on your credit card will start collecting interest and your balance will continue to grow.
Why might my balance transfer application be refused?
Financial institutions assess balance transfer applications carefully. To increase your chances of approval, see some of the factors that could cause a bank to decline your application before you apply:
Poor credit history. You’ll need a good credit history to obtain a balance transfer deal. If you haven’t checked recently, you may find out what your current credit score is with a report from the Credit Bureau. It is important to remember, however, that prompt payments, regular paying off of debt in full and other responsible credit behaviours for at least a year will only clean up the ‘Account Status History’ section of your credit report. Other parts of the credit report will still show your credit card issuer about bankruptcies, defaults and debt management programs in the past.
Submitting multiple applications too rapidly. Too many such enquiries in the credit report can indicate higher risk behaviour to a lender. If an application gets refused, avoid making another application straight away. Take the time instead to work out a plan to help boost your credit rating. When you’re ready, carefully compare your credit options and ensure you meet all the eligibility criteria before making another application.
Transferring to the wrong bank. Banks do not allow balance transfers within institutions of the same group. So before applying for a balance transfer offer, find out which issuers will accept your balance transfer. If you apply for a balance transfer deal from a bank with the same owner as your current card, your application will be immediately refused. If you’d like to explore other ways to pay down debt, you might consider a personal loan.
Cards in a different name. Your new balance transfer account must be in the same name as your current card. If you apply with a different name, such as your partner’s name, your application will be rejected.
So, is a balance transfer worth it?
Used intelligently, a balance transfer can be a good idea as it reduces your interest payments and can help you repay your debts faster. Many people are able to save money with a balance transfer by not paying interest. However, if you use a balance transfer in the wrong way then your debts may escalate. As long as you understand all the typical fees and charges of balance transfers – and how balance transfers work – then you could find you’re in a great place to get on top of your finances.
Frequently asked questions about balance transfers
Exactly how much you’ll save with a balance transfer depends on a number of factors:
The size of your debt you plan to transfer
The current rate of interest you pay on that debt
The length of the 0% or low rate balance transfer offer from your new card company
How you keep up with repayments.
Depending on the level of debt transferred, you may save hundreds or thousands of dollars in interest if you actually work on paying off the entire debt you transferred before the expiry of the promotional period.
No. Your new card issuer will manage this process after both your card and the balance transfer are approved. You simply need to give the details of your existing card when you apply. But if you want to close your old card account, you will need to do this yourself by contacting your bank. If you don’t close your old account, you could be stuck with ongoing annual fees and any other maintenance costs that come with your existing account.
Credit card issuers make money when cardholders pay interest. Then, why would they want to charge 0% interest even for a while when they could charge you 25% or more? Here’s why:
They know that every card customer, including you, will eventually revert to a higher rate. If you don’t pay off your entire debt at the 0% rate, you will end up collecting interest at the prevailing rate for your card. This is usually the purchase rate or cash advance rate, which can range between 25% and 30% in Singapore (from research at time of writing). But, it is typically over 25% on most credit cards. Once that happens, your new credit card issuer can, over time, potentially make hundreds or even thousands of dollars from you in interest charges.
There are several ways you can find out if a balance transfer card reverts to the cash advance rate. The following are the most common ways to figure this out:
Main offer details. Some balance transfer offers outline the revert rate as part of their promotion. For example, the offer may say “Pay 0% on balance transfers for 12 months (reverts to 25% p.a.).”
Fine print. Credit card providers are required to include information about the revert rate in the terms and conditions of their offer. Usually, this will include the specific rate applicable at the time, such as “reverts to the cash advance rate of 28% p.a.” although sometimes it may say “reverts to prevailing cash advance rate”.
Key facts sheet. Providers are required to produce a full Terms and Conditions sheet for every credit card they offer. This sheet includes details of the rates and fees for the card, so you’ll be able to see the introductory balance transfer rate as well as the prevailing rates for the card.
No. It is not possible to do a balance transfer within the same bank. Balance transfers within banks of the same group are not allowed either. Before looking at the various balance transfers offers, you need to find out which issuers will accept your balance transfer. You can check this on our comprehensive list of which credit card issuers won’t allow transfers between each other.
Yes. It is possible to transfer a balance after you’ve applied for the card. However, the exact terms and conditions of doing this may vary depending on the bank. It is best to contact your bank directly to discuss your options.
The key rule that decides whether you can balance transfer to a bank is whether or not your existing bank belongs to the same credit provider group. For example, you may not be able to transfer a POSB credit card balance to a DBS credit card or vice versa because POSB is owned by DBS.
Yes, each application you make for a balance transfer deal, or for loans or new credit cards is recorded in your credit file.
No. Existing customers are ineligible to apply for balance transfer offers with their existing bank. However, if you balance transfer to a different bank, when this balance transfer promotion has ended you will be able to transfer to the first bank again; or to another qualifying bank.
No. You can only transfer balances from credit cards or loans issued in Singapore, in Singapore dollars.
While you may receive approval for your credit card with some issuers within seconds, it may take longer for your old balance to appear in the new account, depending on the bank. Remember that the 0% balance transfer offer applies as soon as your card is approved rather than when your balance is in your account, which may take a couple of weeks.
You should make repayments by the due date given on your bank statement for each statement period. While you can get away by with only the minimum repayment, you should always aim to pay more each month so that you can clear your transferred debt faster.
Remember that your 0% balance transfer offer that will only apply for a limited period. To avoid paying interest on your debt, you should calculate how much you need to pay each month by dividing the size of your debt by the how the length in months of your promotional period. This will give you a goal repayment to make each month to repay your balance before the promotion ends.
If you also made purchases at the prevailing rate on the same card, be careful to repay those amounts in their entirety as well. Not doing so will end up resulting in a higher debt burden than you had before the balance transfer.
Yes, you can repay your balance as early as you’d like. In fact, it is wise to clear your debt as soon as possible to avoid the revert rates and any additional interest costs. Unlike a fixed schedule personal loan or home loan, no penalties apply for clearing your credit card debt ahead of time.
Banks allocate your repayments to the balances accruing the highest rates of interest first. This means that with a low interest rate balance transfer promotion, repayments will usually go towards settling your standard rate purchases and cash advances first. As a result, it is ideal not to make other transactions when repaying a balance transfer to ensure that all of your repayments are dedicated to clearing your debt.
Sally McMullen is Finder's credit cards and frequent flyer editor by day and a music maven by night. She's also one half of the Pocket Money podcast. Her byline can be spotted on Yahoo Finance, Dynamic Business, Financy and Mamamia as well as Music Feeds and Rolling Stone. Sally has a first-class Honours degree in Communications and Media Studies (majoring in Journalism and Professional Writing) from the University of Wollongong.
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