Credit cards offer numerous advantages, such as enhancing your purchasing ability and providing convenience by eliminating the need for constant cash handling. Nevertheless, for all the convenience they offer, they also come with the potential downside of accumulating high-interest charges and debt rather swiftly. So, what steps should you take if you find yourself burdened with credit card debt and facing difficulty in repaying it? One viable solution in Singapore is to explore the option of obtaining a personal loan to settle your credit card debt.
A personal loan is classified as an unsecured loan, meaning that you are not required to pledge any assets as collateral. Consequently, your assets remain safeguarded and cannot be seized in the event that you encounter challenges in repaying the personal loan.
Why Take A Singapore Personal Loan To Pay Off Credit Card Debt
While it may initially appear illogical to acquire a loan to address your debts, there are two compelling reasons why obtaining a personal loan in Singapore to settle your credit card debt can be a prudent decision.
To Avoid Credit Card Debt Snowball
It is possible to get stuck in a never-ending loop in which the outstanding balance on your credit card keeps growing if you do not make timely payments on your credit card charges.
The more time that passes, the more interest that is added to your debt, which causes it to increase at an alarmingly rapid rate.
In a short amount of time, your debt might quickly snowball out of control, and you could find it increasingly difficult to keep up with the ever-increasing interest payments.
Obtaining a personal loan in Singapore may prove to be an efficient method for putting a stop to the possibly disastrous increase in the amount of credit card debt you have accrued.
By receiving a personal loan, whether in the form of a personal instalment plan or a line of credit, you gain access to a lump sum of funds that can be used to settle your existing debt. This can be beneficial if you are trying to get out from under a significant amount of financial obligation.
Read Also: 4 Types of Personal Loans in Singapore
In Order to Acquire Reduced Interest Rates
Certain personal loans in Singapore come with more favourable interest rates compared to credit cards, making them potentially more manageable to repay.
For example, credit cards typically carry a steep average interest rate of 25%, which is considerably high. In contrast, the average interest rates for personal loans in Singapore hover around 6% per annum. Our nominal interest rate commences at just 1.8% per annum.
If you’re uncertain about your eligibility for a personal loan in Singapore, you can explore further details regarding your eligibility for a personal loan here.
4 Ways to Pay Off Credit Card Debt in Singapore
There are many distinct varieties of personal loans available, each catering to a particular set of requirements. The following is an explanation of how you can pay off your credit card debt in Singapore using one of the four different types of personal loans.
1. Personal Instalment Loan
You will have the option to quickly borrow a large sum of money through the use of a personal instalment loan, which can then be used to pay off any outstanding debts that you may have. After that, you will be obligated to pay back this loan to the financial institution, which could be a bank or a licensed moneylender, in a certain number of equal instalments on a periodic basis.
You have complete control over the loan amount as well as the repayment period if you choose this alternative to pay off your outstanding credit card debt. As a result, you benefit from the greatest degree of adaptability possible in this regard.
Personal instalment loans offer a number of benefits, one of which is that the interest rates on some of the available options are cheaper than those on credit cards.
In addition, the duration of a normal loan might range anywhere from 12 to 60 months, giving you plenty of time to pay off your financial obligations. Since you will be progressively repaying the loan in monthly instalments over the course of this extended time, it will be easier for you to keep track of your payments and budget accordingly.
If, on the other hand, you decide to go the route of a personal loan, you will have an even larger degree of control. You have the ability to choose how frequently your payments will be made in instalments. In order to pay off your loan, you have the option of making payments on a weekly, bi-weekly, monthly, or payday basis. This gives you the ability to modify the repayment plan to fit your specific financial circumstances, which makes it more likely that you’ll be able to pay off your credit card debt in a timely manner.
Read Also: How Much Personal Loan Can I Take in Singapore?
2. Line Of Credit
Another variety of personal loans is the line of credit, an option that offers quick access to a lump sum of cash for settling your credit card debt. In Singapore, banks typically provide this type of personal loan.
With a line of credit, the bank extends a pre-approved lump sum of funds, which you can withdraw from whenever the need arises. Importantly, you are only charged interest on the amount you have actually withdrawn.
Similar to certain personal instalment loans, some lines of credit feature lower interest rates compared to credit cards. Interest rates for credit lines generally fall within the range of 18% to 22% per annum.
However, it’s worth noting that this credit facility comes with an annual fee, typically ranging from S$60 to S$120, which is an important consideration.
3. Balance Transfer
A balance transfer option enables you to consolidate all your credit card balances into a single account with a 0% interest rate.
This form of personal loan typically offers a 0% interest rate for a specified duration, affording you additional time to settle your credit card debt. Depending on the specific balance transfer you opt for, you can benefit from anywhere between 3 to 18 months of 0% interest.
It is crucial to note that once the 0% interest period concludes, a higher interest rate comes into effect. Therefore, it is essential to plan diligently to clear your debt within this interest-free window. Failing to do so may make repaying the loan challenging once the standard interest rate applies.
Furthermore, bear in mind that a balance transfer entails a processing fee. Thus, it’s prudent to calculate and assess whether the interest savings accrued during the 0% interest period will sufficiently offset the cost associated with obtaining the balance transfer.
4. Debt Consolidation
Debt consolidation is a refinancing program designed to consolidate all your unsecured credit facilities, including credit cards from various banks, into a single account.
Under this form of personal loan, you will commit to making fixed monthly payments over a predetermined payment period to settle your outstanding debts. Typically, this program offers an extended repayment period, often up to 10 years, ensuring that the repayment amount remains manageable.
Debt consolidation simplifies your financial management by merging your debts into a more structured account, making it especially beneficial when you have additional unsecured loan obligations aside from credit card bills.
It’s important to note that upon entering a debt consolidation plan, all your unsecured loan facilities, except for one line of credit, will be closed or suspended. This program is generally offered by all banks in Singapore that provide unsecured credit facilities and/or credit cards. However, it’s advisable to verify a bank’s participation in the scheme, as new banks may be added or substituted over time.
Additionally, to be eligible for this program, your total unsecured debt must exceed 12 times your monthly income. You should also meet the following criteria:
- Be a Singapore citizen or permanent resident.
- Earn an annual income between S$20,000 and S$120,000 with Net Personal Assets not exceeding S$2 million.
If you are interested in learning more about the four different kinds of personal loans that are available in Singapore, we encourage you to read the extensive information that is provided in this article.
If you are having difficulty paying off your credit card debt, one sensible line of action would be to investigate the possibility of obtaining a personal loan in Singapore in order to cover the cost of the repayment of the debt.
Read Also: How to Get a Personal Loan with Bad Credit: The Ultimate Guide
