AMTD PolicyPal Learn how personal loans can help you pay off credit card debt with lower interest rates, helping you get your finances back on track.
Using credit cards is a smart way to earn cashback and miles on everyday purchases, but it’s only beneficial if you pay your bill in full each month. If you start carrying a balance by only paying part of your bill, the situation can quickly turn against you. With credit cards charging an average interest rate (APR) of 25%, compounded daily, your debt can spiral out of control. Especially if you don’t manage it properly.
If you’re in this situation, don’t panic. You can take vital steps to sort out your finances. As there are various products now to assist you in handling credit card debt, the journey to being debt-free is more manageable and less stressful.
Related: Best Debt Consolidation Plans in Singapore 2024
Debt Consolidation Loans
The simplest way to handle credit card debt is with a debt consolidation loan. This type of loan combines all your unsecured debts into one. Essentially, you take out a loan from one bank to clear all your unsecured debts from various lenders. Now, you’ll only have to make one monthly payment to a single financial institution. No more of juggling payments to multiple lenders.
Pros of Debt Consolidation Loans
The biggest advantage of debt consolidation loans is they come with lower interest rates, sometimes as low as 6.79% EIR. This rate is much lower than what you’re charged on credit cards. So, not only do debt consolidation plans make it easier to manage your debt, but they also help you save money on interest.
Cons of Debt Consolidation Loans
One key drawback of debt consolidation loans is that you need to have an unsecured debt (like credit card debt) at least 12 times your monthly income to qualify. This rule puts people with significant credit card debt but not enough to meet this criterion in a tough spot. They simply won’t qualify for a debt consolidation plan. It’s not a good idea to increase your credit card debt just to qualify for these plans, even if they offer lower interest rates.
Also, as debt consolidation loans are available only if you earn between S$30,000 and S$120,000 a year, high-income earners can’t access this option.
Related: Everything You Need To Know About Debt Consolidation Loans in Singapore
How Personal Loans Help in Managing Credit Card Debt
A debt consolidation loan is just a specific kind of personal loan. Regular personal loans, which have lower eligibility requirements, can also be put to use to quickly pay off your credit card debt.
In Singapore, to qualify for a personal loan, you just need to be between 21 and 65 years old and earn at least S$20,000 annually. This makes getting a standard personal loan relatively straightforward. Personal loans also have an effective interest rate ranging from 6.5% to 8.5%, similar to debt consolidation loans and much lower than the average credit card interest rate of 25%.
It’s important to note that credit card interest is usually calculated daily, while personal loan interest is calculated monthly. Paying off your credit card debt with a personal loan can save you a lot of money in interest charges because of the different ways interest accumulates.
Get an Overview of Personal Loans That Match Your Credit Profile With Lendela
If you’re looking to consolidate debt with a personal loan, consider using Lendela, a loan broker. Lendela, acting as a loan aggregator, presents various personal loan options from banks and licensed moneylenders. This gives a clear overview of the best personal loans available based on your credit profile.
Lendela offers a more accessible option for those earning at least S$1,200 monthly, making it easier for lower-income earners to get a personal loan. This can be especially helpful for those looking to manage their credit card payments more effectively, even if they may not meet the criteria set by traditional banks.
A key advantage of Lendela is its quick cash disbursement. You can receive your personal loan within one day after approval. Since credit card interest compounds daily, it’s crucial to get a fast response on your loan application. The faster you can clear your credit card debt, the better.
Related: 5 Financial Mistakes That Single 30-Somethings Make
Secure the Best Personal Loans
Now that you understand how a personal loan helps in credit card debt, decide if it’s the right move for you to manage your finances. For more information on personal loan options, explore our guide to the best personal loans in Singapore.
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