Credit Card Debt in Singapore - Best Personal Loans for Repaying Your Bills (2024)
Credit card debt is a common phenomenon in Singapore. Some of us might not even be aware that paying the "minimum" on our credit card bills can cause our debt to snowball, making it harder and harder to repay our bills. If you are struggling to conquer your credit card debt, a smart method to clear it is to get a personal loan. Under this debt repayment method, you use the borrowed cash to pay off your credit card debt in one fell swoop, then repay the loan at a more comfortable pace - and at a much lower interest rate. Here's the lowdown on repaying credit card debt with a personal loan.
What Can You Do About Your Credit Card Debt in Singapore?
Credit cards are a wonderful way to earn rewards on your spending, provided you repay your bills faithfully every month. But for those who can't repay on time, the sky-high interest rates and numerous late payment fees start kicking in, causing your credit card debt to start snowballing. If you're struggling with unpaid credit card bills, here are 3 common loan products that allow you to tackle that snowball.
Personal Loan
The most flexible way to repay outstanding credit card debt is the personal loan. You can choose the loan amount and loan tenure that suits you. You will need to exercise discipline, however, in using the cash to repay your credit card bills in full - instead of letting it contribute to your debt. On top of that, you need to commit to the monthly repayments, which are likely significantly more than the minimum payment on a credit card bill.
Balance Transfer
If you face cashflow issues at the moment but know for sure that you'll get a large sum of money soon, a balance transfer is another option to consider. You can apply for a balance transfer with your credit card issuer. After you pay an upfront processing fee, a balance transfer temporarily changes the interest on your debt to 0% for a period of your choosing (3 to 18 months). During this time, you need to pay a small minimum of 1% to 3% every month, but by the end of the period, you need to repay your debt in full.
Debt Consolidation Plan
Finally, debt consolidation plans are special personal loans open to Singapore citizens and PRs who are heavily in debt. You'll only qualify if your unsecured/credit card debt amounts to at least 12 months' salary. On top of that, there are further eligibility conditions to fulfil, such as your income and net assets. Similar to a personal loan, this is a fixed repayment plan, but it is less flexible. We'll go into details further below.
Repaying Credit Card Debt With a Personal Loan - Pros & Cons
As mentioned, a personal loan is oftentimes the most flexible way to repay your credit card debt. The procedure is also relatively simple. You just need to apply for a personal loan, and use the disbursed cash to pay off your credit card bills immediately. Then, commit to repaying the personal loan according to the fixed repayment plan you picked... while making sure you don't incur any more credit card debt.
That said, it's not for everyone. Here are some advantages and disadvantages of using a personal loan to clear your credit card debt.
Pros:
Easy to compare and apply for a personal loan through MoneySmart
You're able to choose the interest rate and loan package for your needs
You can borrow a small sum (starting from S$1,000)
You can choose repayment periods ranging from 1 year to 7 years
Repayment plan is fixed and does not fluctuate monthly, so it's easy to budget for
Has lower interest rate compared to credit card interest rates
Cons:
If you have a bad credit history or low income, it may be hard to get a personal loan (or low interest rate)
You may be tempted to borrow more than you need to pay off your credit card debt
It requires lots of discipline to use the borrowed cash to repay your bills
Personal loans are lower interest than credit cards, but there are also fees to look out for
Personal loans are a financial commitment that will span years
If you have underlying debt issues, they will not be addressed
Now that you're aware of these important aspects of using a personal loan to clear your credit card debt, here are our top picks for low interest personal loans.
Calculate Your Personal Loan Payments
Want to know how much you'll need to pay every month with your personal loan? Head to MoneySmart's personal loan calculator and comparison tool to figure it all out. All you need to do is input your details and desired loan amount and tenure, and we'll automatically find the best options for you.
Repaying Credit Card Debt With a Balance Transfer - Pros & Cons
A balance transfer is different from a personal loan, in that you need not apply for a separate product to pay off your credit card debt. You can go straight to the credit card provider and ask for a balance transfer. As its name implies, your credit card balances will be transferred (consolidated) into a special credit card, and you are effectively granted an extension of typically 6 to 12 months. This gives you some time to raise funds and puts your high-interest debt on pause. But what are the advantages and disadvantages of this move?
Pros:
Cons:
Repaying Credit Card Debt With Debt Consolidation Plan - Pros & Cons
Finally, let's take a look at the debt consolidation plan or DCP. DCPs are a debt repayment scheme supported by the Singapore government, and is only open to Singapore citizens and PRs. Its aim is mainly to tackle the chronic or heavy credit card debt, so you will find that it's a lot more restrictive and severe than a personal loan or balance transfer. DCPs work similarly to personal loans, except this time the bank will be the one repaying the credit card debt for you. But it's not all that simple. Here are the pros and cons to bear in mind:
Pros:
Cons:
Compare Debt Consolidation Plans
With at least 8 providers offering debt consolidation plans in Singapore, you'll want to compare the interest rates and packages to find the best one for your needs. Use MoneySmart's debt consolidation plan calculator and comparison tool to check out the options at a glance.
Frequently Asked Questions
Is it better to get a personal loan to pay off credit card debt?
- In general, yes, because personal loans have much lower interest rates than that of credit cards. If your credit card bill keeps inflating due to the crazy-high interest rates and overdue payments, it's probably better to pay it off in one shot and start afresh. A personal loan allows you to do that with a big chunk of cash. However, the downside is that you need to commit to the monthly repayment schedule for your personal loan. The monthly payments can be substantial, and bear in mind they typically stretch for a few years. This may affect your cash flow in the near future as well.
What debt should you pay off first?
- If you have multiple debts to repay, you might feel overwhelmed without a strategy to tackle them one by one. Some borrowers pay off their smallest debts first (because they are easiest to clear), while others repay whichever borrower has the most aggressive debt collector first. There is nothing inherent wrong with any of these strategies, but if can choose, you should opt to pay off the highest interest debts first (typically credit card debt). This means paying the absolute minimum on your other loans while you focus on paying off the credit card bills ASAP. Once the highest interest debt is cleared, move on to the next highest, and so on.
Is a personal loan bad for your credit score?
- You might wonder if it's even a good idea to take on another debt in the form of a personal loan - given that your credit score isn't looking so stellar right now. Well, a personal loan may actually improve your credit score... But only if you make your repayments in full, punctually and faithfully. This establishes a good payment history which looks good on your credit history. On the flip side, there's always the risk of running late or short on your personal loan repayments, which would negatively affect your credit score.
What else can I use my personal loans for?
- There are an array of loans that are available. However, do some due diligence on knowing what risks come with each loan and whether taking on the debt is able to improve your financial situation. If you are interested to know what different loans are available, we written a short guide on the different ways to use a personal loan in Singapore.
