Combating The Credit Card Debt Cycle: Balance Transfer │ WeLab Bank

With so many credit card promotions and offers, it's easy to accumulate credit card debt that may exceed your financial capacity. Paying only the minimum payment can result in the debt snowballing, and it may take years to clear the debt. If you find yourself constantly battling credit card debt every month, you may want to consider a balance transfer, also known as debt consolidation loan program that offers a solution to tackle the problem of growing debt and take the approach the clear all debt in one go.What is a Balance Transfer?A balance transfer, also known as a debt consolidation loan, is a loan program offered by banks or financial institutions that consolidates a customer's credit card balances, bank loans, or loans from financial companies into one loan with a lower annual interest rate, helping customers clear the debt in one go. Customers can also save on additional interest expenses and reduce their monthly repayments.What are the Benefits of Balance Transfer?
  • Savings on Interest Expenses: The actual annual interest rate on most credit cards is generally over 30%, and if you only make minimum payments, the interest is calculated on a compounding basis, and the repayment period becomes long and uncertain. In comparison, the actual annual interest rate of a balance transfer loan is lower, ranging from about 5% to 19%, and the loan interest is calculated using the reducing balance method, with a relatively short repayment period, which helps people with credit card debt to regain financial freedom quickly.
  • Reduced Repayment Pressure: The repayment period of this type of debt consolidation loan is also more flexible, allowing customers to tailor a repayment plan for their credit card debt according to their personal financial needs and circumstances, such as extending the repayment period to reduce the total monthly repayment amount and ease the monthly repayment pressure.
  • Assistance with Cash Flow Management: Some balance transfer debt consolidation loans also offer cash withdrawal services, which allow customers to withdraw additional cash for emergency use even when repaying credit card debt and other debts.
  • Convenience: As this type of debt consolidation loan helps consolidate and repay different credit card debts and loans in one place, customers only need to deal with debt repayment at one bank or financial institution, making the process simpler and avoiding the risk of penalty for forgetting different debt repayment dates.
  • Improved Credit Score: Debt consolidation loans can help improve credit scores by consolidating and repaying different credit card debts and loans, thus avoiding a decrease in credit score due to default on different debts. If customers can repay on time, their credit score may gradually improve.
Is Balance Transfer the Same as Personal Instalment Loans?Although the nature of a balance transfer is similar to that of a personal instalment loan, the two are different in terms of loan purposes and loan disbursement methods.
  • Balance transfer: Primarily aimed at debt repayment, this loan method usually involves depositing the loan amount directly into the designated credit card or loan account, or sending a cashier's check to the customer for them to repay their credit card balance or debt on their own. However, some banks now offer debt consolidation loans combining repayment and cash-out loans, allowing customers to have additional funds for cash flow while repaying their debts.
  • Personal instalment Loan: A loan for personal use, which can be used for various purposes, such as home renovation, travel, or education. The loan amount is usually determined based on the borrower's creditworthiness, and the loan is disbursed in a lump sum to the borrower's designated bank account.
Who should consider applying for a balance transfer?If you find yourself struggling to make more than just the minimum payment on your credit card each month, or even resorting to using another credit card to pay off the outstanding balance and getting caught in a never-ending cycle of credit card debt, along with overdue repayments on other debts, a balance transfer can be a helpful solution to get through tough times. Moreover, if you have been borrowing excessively and defaulting on repayments, resulting in a lower credit rating, it may be challenging to qualify for low-interest personal loans to pay off your credit card debts. In such situations, a debt consolidation loan can be the ideal choice for consolidating your debts.Traditional banks vs Virtual banksBoth traditional banks and virtual banks offer debt consolidation loans, but the biggest difference lies in the fact that applying with virtual banks is simpler and can be done entirely online through their app, 24/7. This greatly reduces the embarrassment of borrowing due to a large number of credit card debts and allows for quick debt consolidation anytime, anywhere.Other debt consolidation suggestionsWhile debt consolidation loans can be one effective method for resolving credit card debt woes, there are other debt consolidation options available if your debt level doesn't qualify for a debt consolidation loan. Here are some suggestions for clearing your credit card debts:
  • Increase income and reduce expenses: Increasing income and reducing expenses can effectively ease the burden of debt repayment and avoid adding new credit card debts, helping to shorten the repayment period.
  • Reduce credit limit: Reducing unnecessary expenses by lowering your credit limit can help curb excessive spending and strengthen consumption control.
  • Credit card instalment plan: Applying for a monthly statement instalment plan allows for repayment over a period of up to 36 months, reducing the pressure of lump-sum debt repayment. Although there may be handling fees involved, it is still more cost-effective compared to paying only the minimum payment.
  • Tax loans: Many banks or financial institutions offer low-interest tax loans during the tax season (October to April of the following year). The annual interest rate is generally lower than regular loans. If your debt repayment coincides with the tax season, you may consider using this type of loan to help pay off your credit card debts.
If you are still struggling with credit card debts and don't know which debt consolidation loan plan is suitable for you, WeLab Bank's exclusive Loan Masters1 provides you with suitable debt consolidation loan plans, along with the Debt Consolidation Loan to help you pay off your credit card debts in one go. For more information, visit: borrow or not to borrow? Borrow only if you can repay!1Loan Masters refer to WeLab Bank’s self-developed approval system that works in tandem with the team that follows up with the customers, to provide professional advice to customers based on their unique loan requirements and financial situations.