This article is written in collaboration with Standard Chartered Bank (Singapore) Limited (“SCBSL”). All information provided is for informational purposes only and is not intended to be as advice or an offer for any product or service. SCBSL is not liable for any informational errors, incompleteness, delays, or for any actions taken in reliance on information contained herein. All views expressed in the article are the independent opinions of DollarsAndSense.sg
Having unpaid credit card bills is never a good idea. In fact, most people are aware that at 24%-26% per annum (p.a.) or more, interest rates on unpaid credit card bills can snowball quickly when left unpaid over an extended period of time.
What should you do if you have charged a large amount to your credit card and are now looking to pay off your bills each month?
Traditional Way Of Paying Your Credit Card Bill
Having overdue credit card bills is not a good habit to have. As responsible credit card users, we need to recognise situations where we may have (unintentionally) spent more than we should, and now have difficulty in paying off outstanding credit card bills.
The next step is to formulate a plan. When it comes to overdue credit card bills, paying it off as much as you can each month could be the usual strategy that most people adopt, but it is not necessarily the best solution. This is because you are being charged a high credit card interest rate of around 24% p.a. even during the months when you are paying your bill.
In other words, while you are doing your utmost to reduce your principal amount owed each month, high interest rates continue to be applied to the remaining principal that has yet to be paid. In this scenario, the smarter way to deal with your credit card bill may be by using a credit card balance transfer.
What Is A Credit Card Balance Transfer?
A credit card balance transfer, also known as a credit card funds transfer, is a credit facility offered via your credit card. Interest rate for balance transfer is usually 0% with a one-time processing fee for your chosen repayment tenure. Most credit card balance transfers allow you to choose a repayment tenure of either 6 or 12 months.
Using a credit card balance transfer allows you to tap on the existing credit limit available on your credit card, and effect a fund transfer from your credit card to your savings account, current account or credit card with any bank. These funds can then be used to pay for any unpaid credit card bill. For example, Standard Chartered Credit Card Funds Transfer charges a processing fee of 1.99% (EIR: 4.12%) and 4.5% (EIR: 4.86%) with zero interest rate^.
How Does Credit Card Balance Transfer Help Save You Money?
For example, if Cindy currently has an unpaid credit card bill of $10,000, she tries to pay her bill each month for the next 6 months. By doing so, she would accrue interest on her outstanding principal every month (for the next 6 months) until she clears her debt. Based on an illustrative effective interest rate of 24% p.a., this adds up to a substantial amount of up to $1,200, if she pays the minimum monthly repayment amount over 6 months.
As such, a better alternative is for Cindy to take a credit card balance transfer.
Here’s how it works:
# 1 Cindy takes a credit card balance transfer of $10,000 at a 6-month tenure. Based on the Standard Chartered Credit Card Funds Transfer rate, she’ll pay $199 in processing fees (1.99%).
# 2 She use the funds to pay for her $10,000 credit card bill and no longer incurs interest on her credit card bill.
# 3 She pays the minimum monthly payment required of 1% of the outstanding principal amount over the next 5 months. Each month, the minimum monthly payment will be lower than the previous month as the outstanding principal amount will be reduced, with the monthly payment.
# 4 By the end of the 6-month tenure, she repays the outstanding principal amount. She will not incur any interest for using credit card balance transfer (EIR from 4.12% p.a.).
Enjoy Interest Savings with A Credit Cards Balance Transfer
Regardless of whether you use a credit card balance transfer or pay your bill every month, the $10,000 that you have spent needs to be paid for.
Credit card balance transfers allow you to have interest-free funds on hand for a short-term period with a one-time processing fee. However, do note that if you miss your monthly minimum repayment by the payment due date, applicable finance charges or late payment fees will kick in.
Ultimately – Credit card balance transfers, when used correctly, can be an effective way to manage credit card debt or repay other loans that you may have taken.
^ This promotional interest rate is only valid for the approved tenure. The prevailing interest rate chargeable for the Credit Card account will apply after the approved tenure on the outstanding principal amount.
* Standard Chartered Bank (Singapore) Limited’s Credit Card Funds Transfer Programme Product Terms and Conditions apply. For full Terms and Conditions, refer to sc.com/sg/ccftterms
All Standard Chartered Bank Credit Card Funds Transfer (CCFT) applications are subject to SCBSL’s loan approval process at its sole discretion. For more information on the Standard Chartered Credit Card Funds Transfer (CCFT), visit sc.com/sg/ccft