Credit cards offer a variety of benefits but when they are misused, your credit card bills can easily snowball into a huge debt due to the annual interest rates that go as high as 25% to 28% per annum.
With a manual calculator or online debt calculator, assume you have a credit card bill of S$5,000 and you can only afford to repay S$150 per month (based on a 3% minimum sum required by most banks). With a 25% per annum interest rate, you will take up to 58 months to repay the entire debt with interest, which would have snowballed to S$8,625.11 by then — almost 70% more than the original debt!
If you’re wondering how to solve credit card debt without incurring hefty interest, consider leveraging a personal loan.
Why use a personal loan to solve credit card debt?
When considering how to tackle or pay off credit card debt fast, many are turning to personal loans. This is because of the interest rates that personal loans offer. Typically ranging from 2.99% to 5.43% per annum, they are much lower than that of credit cards’ interest rates. Furthermore, personal loans are highly flexible; both the loan amount and loan tenure can be tailored to suit your needs.
Essentially, taking up a personal loan may be the answer to “how to clear your credit card debt” more efficiently.
Before taking up a loan, always compare different packages from different banks and money lenders to find one that is most suitable for your needs and affordability. Find out how a personal loan EMI calculator can help you.
Drawbacks of using personal loan
A personal loan may seem like a god-send if you’re wondering how to solve your credit card debt, however, there are some drawbacks that you must take note of.
When comparing loans between banks and money lenders – the first thing you should keep in mind is that they both charge a variety of fees. These are monies that are out-of-pocket and cannot be recovered.
You’ll also run the risk of incurring more credit card debt since the personal loan frees up your credit limit. This means you may end up with more debts – one from your loan and another from your new credit card bills.
Additionally, you’ll not always be granted a personal loan or a lower interest rate. This is largely dependent on your credit history, income and Total debt servicing ratio (TDSR).
How to pay off credit card debt with a personal loan?
Once you obtain a personal loan, use it to repay your entire credit card debt. This is how you can tackle your credit card debt to ensure you’ll not incur more late interest from making late payments.
Next, focus on repaying the loan at a more comfortable pace. Since the interest rate is lower than your credit card’s, you’ll likely find it easier to pay off the loan sum than your credit card balance.
This is important: Exercise discipline and commit to monthly repayments promptly to avoid incurring late fees or penalties that may further damage your credit score. And here’s another catch — puntual personal loan repayments can even boost your credit score and get your loans approved in the future.
Common features of personal loans in Singapore
Personal loans are viable solutions for those wondering how to tackle credit card debt. If you are keen to apply for one, do note the common features of such a loan:
- Repayment periods can range from one year to seven years
- Loan sum can start from as low as S$1,000
- Repayment plan is fixed and does not fluctuate
- No collateral is required (personal loans are mostly unsecured loans)
- Different types of loans are available
- Interest rates are much lower than credit card interest rates
The fact that personal loan interest rates are lower also points to why you should always pay off your credit card bills first. This strategy will help you to save money in interest charges over time.
How much can you borrow on a personal loan?
The maximum personal loan one can get from banks depends on their income. Borrowers with less than $120,000 annual income are usually eligible to borrow 4 to 6 times their monthly income while those earning $120,000 or more per year can borrow up to 10 times their monthly income.
Note that the final loan sum is subject to the lender’s discretion. Lenders will always take into consideration your credit history, income and existing credit facilities to derive an amount.
When it comes to repayment mode, most banks accept Interbank GIRO, bank transfers, and cheques. Can you pay a personal loan with a credit card? The answer is no, you cannot charge personal loan instalments to your credit card.
Conclusion: How to clear credit card debt for good?
Importantly, don’t fall back into the habit of overspending with your credit card after you’ve paid your outstanding balance with a personal loan.
Always be mindful of your underlying debt issues and learn to be financially savvy by prioritising saving and investing over unplanned spending.
Sometimes, how you can solve your credit card debt issue is as simple as setting a monthly expenses budget and lowering the credit limit of your credit card. If making prompt repayment is a challenge for you, consider setting up a GIRO payment method for your credit card. This will ensure your bills are paid on time without incurring late interest charges and late payment fees.
Need a personal loan? Use Personal Loan Finder for quick and easy loan comparison. Our platform is free-of-charge, and you can easily compare bank loans as well as get complimentary loan quotes from top licensed money lenders in Singapore.
