What you need to know about balance transfer
Being able to swipe with your credit card and buy whatever you desire even before your next paycheck comes in is an amazing feeling.
What’s not amazing is when your credit card monthly statement gives you a reality check and you have to pay your outstanding bills.
You could just pay the minimum amount due and tell yourself to be a bit more careful with your spending.
Then, reality hits you once more, and very hard. Your amount due has snowballed beyond your monthly income. Late payment and high interest rates from your credit card bill are looming on the horizon.
How do you get yourself out of this predicament? Two words: balance transfer.
What is a balance transfer?
The name is an obvious giveaway, as it transfers an outstanding balance amount from the available credit limit of your credit card to an account within the same bank it’s transferred from.
This short-term cash facility is especially crucial when your bill is reaching the late payment stage and will hit you with a high interest rate. To avoid that, you’ll need to pay off the outstanding amount almost immediately.
Of course, there’s no free lunch in this world. You’ve bought some much needed time to spread out your bills. While you might have paid off your credit card bill, there’s the matter of paying your dues with the bank who provided you with the balance transfer.
How does a balance transfer benefit me?
We’ve talked briefly about how a balance transfer is a viable option to pay off your outstanding, soon-to-be late credit card bills. But let’s think out of the box - there are more ways to make full use of a balance transfer.
Think about your home renovation. You might be keen to get that new TV, but find yourself slightly strapped for cash due to a lot more purchases. Using a balance transfer, you can pay for that TV first and spread out that payment.
Or perhaps you’re planning for a wedding and need some additional cash for those ang pows you’ll be packing for friends who helped out at your wedding. Maybe, the wedding band requires immediate payment but you’ve already used up most of your cash for other parts of the wedding.
The potential of a balance transfer and what you can do with it is limitless. Well, not exactly, it’s still bound by the credit limit of the facility you’re transferring from.
At this point, you might be thinking that a balance transfer is very much like a personal loan. Now, throw that thought out of the window. Because these facilities are nothing alike.
0% interest for loan amount
Yes, it’s true. You are not charged any interest at all for whatever you loan. That means you won’t get a rude shock at seeing a repayment amount that’s way higher than what you’ve loaned.
Personal loans, however, can potentially raise your repayment amount significantly, depending on the interest rate that’s charged to the loan amount.
So if you’re looking at a loan amount of $3,000, that’s how much you’ll need to repay with a balance transfer. Well, that and a one-time admin fee, which is a small percentage of your loan amount.
You could go with a personal loan and stretch the payment over a longer period. But be mindful that your overall repayment amount will be much higher, given that personal loan interest rates could start from at least 4% p.a. and is dependent on your tenure too. That means the longer you take to repay the personal loan, the higher the amount.
Did you know that you pay a lower admin rate if you apply online with DBS? This is a mere 2.5% of the loan amount for a 6-month tenure (or 4.5% for a 12-month tenure). Considering that your credit card interest rate is at least 20%, this would be a much better option to pay your outstanding statement.
Consider this - your bill is due in just a few days and you do not want to get hit by the late payment fee. At that point, you need to turn your cashflow around quickly.
Balance transfer has the advantage of instant approval, since it’s basically transferring from the credit limit of your existing credit card. Plus, you don’t have to go through multiple hoops to apply for a balance transfer. By doing it online, you can skip the queue and have the amount transferred within the next working day.
Here’s a tip: besides a faster application process, online applications for balance transfer also come with additional promotions. If you apply online via DBS, you get additional cashback. And it’s quite substantial because you can get up to $500 cashback.
Short-term loan with flexible repayment
Remember, a Lannister always pays his debts. Well, even if you aren’t a Lannister, you should always pay your debt and never put off the repayment for too long.
With balance transfer, you are looking at either a 6-months or 12-months period to repay the amount. This might seem like a very short period, but consider this: having a shorter period disciplines you to manage your finances better. Because at the end of the day, you always pay your debt on time.
Unlike a personal loan, balance transfer doesn’t require you to pay a fixed amount every month. Instead, you can pay the minimum amount, much like how you do so for your credit card bill. The endgame is to full repay the amount by the time your balance transfer tenure is up.
The flexible repayment of a balance transfer is definitely to your advantage, especially when you’re running a bit short on cash for just a few months during the loan period.
Know this, if you aren’t able to fully repay the balance transfer amount once the tenure is up, you’ll be subjected to the effective interest rate of the credit card that the amount originated from. But really, we think anyone should be able to pay $500, which is the minimum loan amount you’ll have to take if you apply for a balance transfer with DBS.
Okay, you got me interested, show me the money
You mean how to apply for a balance transfer? Like we mentioned, you can simply do it online through the various banks. There’s plenty to choose from, so it’s wise to do a bit of research before you fill out the online application form.
But more importantly, make sure that the balance transfer offers some special online rates or promotions to sweeten the deal. Promotions such as DBS’s affordable admin fee (2.5% of the loan amount for a 6-months tenure) and cashbacks are worth considering.
On top of that, an easy application process should be on the top of your list. DBS, for example, makes it so easy, it’s just a few steps. Just follow the instructions on its application page and you’re all set.
Pay off your credit card bills. Start on your house renovation. Remember, having a balance transfer is more than a lifeline. It brings balance back to your life.
This article is brought to you by DBS to bring balance back to your bank account.