To get a proper understanding of credit card loans and how you can benefit from them, you need to understand concepts such as balance transfers and fund transfers. A balance transfer is a transfer from one credit card to another. Credit card issuers are hungry for new credit card customers and will offer 0% balance transfers as a way of luring customers of other issuers. The 0% interest rate will apply for a fixed term of which is normally six months or could be nine months or even 12 months. You can take a look at the current deals that are available in Singapore on any online credit card comparison website.
You must always keep in mind that your debt does not vanish simply because you have made a balance transfer. It just means that you do not have to pay interest on your debt for the stipulated 0% period even though you have to make your regular monthly payments. This may seem obvious but a lot of people tend to push this to the back of their minds. A balance transfer is worthwhile only if you have an outstanding balance on your credit card on a continuous basis. You should exercise caution when you make a balance transfer because the savings from not making interest payments should not become a go-ahead for increasing your debt. Instead, you should actually use the saving to reduce your overall level of debt.
Here are some of the things that you should look out for in a balance transfer:
- The length of the offer period. Obviously, the longer the period, the more interest you can save.
- The interest rate that is on offer (can be 0% or a really attractive low rate)
- The amount of interest that you can save. Some card issuers will allow you to transfer balances from loan accounts and overdraft accounts so that you save on the interest that you are currently paying.
- The cut-off period for the balance transfer. If the validity of the 0% of has lapsed, you may well end up transferring the balance to a card with a high rate of interest
- The costs associated with the transfer. Some banks will charge a fee as a handling fee or a transfer fee
After the validity period of the balance transfer at low interest rates is over, be prepared to pay the normal interest rates on your outstanding balance. If you are smart and disciplined, there’s nothing to stop you from switching to another card offering the 0% interest balance transfer. As long as these balance transfer deals exist in the market, you can take full advantage by switching cards as and when the offer period lapses.
Fund transfers work by allowing you to transfer money from the credit card to your bank account during the period of the low interest rate offer. As we have seen earlier, if you’re running an overdraft, you will save interest because the current balance will be at 0% interest. Alternatively, you can transfer money to a savings account and profit from the difference between the 0% interest rate on the card balance and the interest that your savings account will earn.