10 July 2020

Credit cards have a lot of benefits. Not only do they boost your spending power, but they’re also very convenient since you don’t need to keep drawing and carrying cash. However, for the convenience they offer, you run the risk of incurring high interest and accumulating debt quickly. What should you do when you find yourself incurring a credit card debt and struggling to pay back everything? You can consider taking a personal loan in Singapore to pay it off.

As it’s a type of unsecured loan, your assets won’t be taken as collateral and cannot be seized if you can’t repay the personal loan.

What’s the difference between a secured and unsecured loan? Learn more about the differences here. 

Why You Should Take A Personal Loan In Singapore To Clear Your Credit Card Debt

Though it might seem counterintuitive to take a loan to clear debts, as you might risk incurring more debts for yourself, there are 2 good reasons as to why you should take a personal loan in Singapore to pay off your credit card debt.

To Prevent Snowballing Of Credit Card Debt

If you don’t pay your credit card debts on time, the credit card balance will just keep rolling over.

You’ll be accumulating more interest for every additional day that your debt goes unpaid. 

Before you know it, your debt starts to snowball and you’ll be struggling to pay off the increasing interest incurred.

Taking a personal loan in Singapore can help stop this potentially damaging snowballing of your credit card debt.

With a personal loan such as a personal instalment term or line of credit, you can use the lump sum of money to pay off your debt. 

To Get Lower Interest Rates

Some personal loans in Singapore have lower interest rates than credit cards, which means that they may be easier to pay off.

For instance, the average interest rate of credit cards is 25%, which is extremely high. In contrast, the average interest rates of personal loans in Singapore is approximately 6% per annum. At Crawfort, our nominal interest starts from 1.8% per annum. 

Unsure if you can take a personal loan in Singapore? Find out more about your personal loan eligibility here. 

An individual entering credit card details on a laptop to apply for balance transfer, a type of personal loan in Singapore

Personal loans such as balance transfers allow you to pay your credit card balances to one account.

4 Types Of Personal Loans That Will Help You Clear Your Credit Card Debt

There are different types of personal loans for different needs. Here’s how you can clear your credit card debt with these 4 types of personal loans in Singapore. 

1. Personal Instalment Loan

A personal instalment loan allows you to borrow a lump sum of money quickly, which can be used to pay off your debts. You’ll then have to repay the financial institution, whether it’s a bank or a licensed moneylender, in instalments.

It’s the most flexible option to repay your outstanding credit card debt, as you can decide on the loan amount and loan tenure. 

The good thing about personal instalment loans is that some of them come with a lower interest rate than credit cards.

Plus, the loan tenure is typically 12 to 60 months, which gives you ample time to repay your loan. 

This allows you to manage your payments better as you’ll be paying it off in monthly instalments.

However, if you’re taking a personal loan from Crawfort, you’ll have the flexibility to choose the frequency of your instalments. At Crawfort, you can choose either weekly, bi-weekly, payday, or monthly instalments to pay off your loan. 

This gives you more control to decide on the best repayment schedule for you to pay off your credit card debt.

2. Line Of Credit

A line of credit is another type of personal loan which allows you to get a lump sum of cash quickly to pay off your credit card debt. In Singapore, this type of personal loan is usually offered by banks. 

The bank will provide you with a pre-approved lump sum of cash, and you can withdraw from it at any point in time. 

You’ll only need to pay the interest based on the amount you’ve withdrawn. 

Like some personal instalment loans, some lines of credit have lower interest rates than credit cards. Interest rates of credit lines are generally between 18% to 22% per annum.

However, the caveat is that this credit facility has an annual fee that you have to pay for, which is about S$60 to S$120

Infographic on 3 ways to clear your credit card debt with a personal loan in Singapore

Getting a lump sum of cash from a personal instalment loan or a credit line is 1 way to clear your credit card debt.

3. Balance Transfer

A balance transfer allows you to transfer all your credit card balances to a single account with 0% interest. 

This type of personal loan usually charges 0% interest for up to a certain period, giving you more time to clear your credit card debt. Depending on the balance transfer you go for, you can enjoy 3 to 18 months of 0% interest. 

However, a high-interest rate takes effect once the 0% interest period ends, so you should plan to clear your debt within that period. Otherwise, you might find it difficult to pay back your loan if it’s not cleared by then.

Additionally, the balance transfer comes with a processing fee. So remember to calculate and consider if the interest you save during the 0% interest period can cover the cost of taking the balance transfer.

4. Debt Consolidation

Debt consolidation is a debt refinancing programme that allows you to consolidate all your unsecured credit facilities, including credit cards, across several banks into 1 account.

With this type of personal loan, you’ll have to pay a fixed monthly payment over a fixed payment period to clear off your debts. Usually, there’s a long repayment period of up to 10 years to ensure that the repayment is manageable.

Debt consolidation helps with budgeting as it consolidates your debt into a more manageable account. It’s especially useful if you have other unsecured loan debts to clear besides credit card bills. 

However, all your unsecured loan facilities, except for 1 line of credit, are closed or suspended once you take on this debt consolidation plan. 

All banks in Singapore that provide unsecured credit facilities and/or credit cards generally also provide this debt consolidation scheme.

Before taking it out from a bank, be sure to check if it’s participating in the scheme since new banks may be added or substituted over time.

Another thing to note is that your total unsecured debt has to exceed 12 times your monthly income to be eligible for this scheme. 

In addition, you’ll need to meet the following criteria to qualify for it: 

  • Be a Singapore citizen or permanent resident
  • Earn between S$20,000 and S$120,000 per annum with Net Personal Assets of less than S$2 million 

Learn more about debt consolidation plan here. 

Here’s a table summarising the main pros and cons of taking these 4 types of personal loans in Singapore to clear your credit card debt. 

Type of personal loan Pros Cons
Personal instalment loan
  • Has a processing fee
Line of credit
  • Allows you to borrow a lump sum of cash anytime you want 
  • Only need to pay the interest based on the amount you borrow
  • Some have lower interest rates than credit cards
  • Has an annual fee
Balance transfer
  • Charges 0% interest for 3 to 18 months, depending on the balance transfer you’re taking
  • High-interest rate after 0% interest period has ended
  • Comes with a processing fee
Debt consolidation
  • Helps with budgeting as it consolidates your debt into a more manageable account
  • Fixed monthly interest rate and payment period
  • Long repayment period
  • Other unsecured loan facilities (except for 1 credit line) are closed or suspended until you clear this loan
  • Total unsecured debt has to exceed 12 times of your monthly income in order to qualify for the scheme

 

Be sure to head over to this article to learn more about these 4 types of personal loans available in Singapore. 

If you find yourself struggling to pay off your credit card debt, you may consider taking a personal loan in Singapore to pay it off. 

Apply for a personal loan at Crawfort now to prevent your credit card debt from snowballing. 

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