Official data from the Singapore Department of Statistics has shown that credit card debt has risen to its highest levels in 2022 since the start of the pandemic. Despite inflation and recessionary concerns, consumers are still spending on things such as travel, gaming and even bubble tea, with gaming spending growing almost 25% in the past year.
While the use of credit cards is great for accumulating cashback and miles rewards on your daily spending, it only benefits you if you pay off your credit card bill in full every month. Credit cards start to become insidious if an individual accrues credit card debt by only paying for part of their credit card bill every month. Credit cards have an average interest rate (APR) of 25%, which is compounded daily. This can cause your credit card debt to get out of control if you don’t quickly pay down your debt.
If you have found yourself in this situation, don’t fret. It is great that you are taking the initiative to get your finances back on track. There are currently different products on the market that can help you tackle your credit card debt to make becoming debt-free a manageable and stress-free experience.
Debt Consolidation Loans
The most straightforward solution to mounting credit card debt is to take out a debt consolidation loan. As the name suggests, a debt consolidation loan consolidates all your unsecured loans. You are effectively taking out a loan with a single bank to pay off all your total outstanding unsecured debt across all the different financial institutions. You would now only have to pay monthly instalments to one financial institution instead of making monthly repayments to every single lender.
The major perk of debt consolidation loans is their lower interest rates, which can be as low as 6.50% EIR. This is significantly lower than the interest rates charged on credit cards. Thus, debt consolidation plans not only streamline your debt repayment process, they also allow you to save on accrued interest.
Limitations of Debt Consolidation Loans
However, one of the major limitations of debt consolidation loans is that in order to be eligible, your unsecured interest-bearing balance (i.e. outstanding unsecured debt) has to be at least 12 times your monthly income. This leaves in limbo individuals with substantial outstanding credit card debt who have not reached the level of having their one year’s annual income in unsecured debt. They would not be able to qualify for a debt consolidation plan at all. Obviously, it would not be in your interest to wrack up further credit card debt just to be able to qualify for a debt consolidation plan regardless of the lower interest rates.
Furthermore, debt consolidation loans are only available to those who have an annual income of S$30,000 to S$120,000. If you are a high-income earner, this option is also not available to you.
Here Is Where Personal Loans Can Help
A debt consolidation loan is simply a type of personal loan. Regular personal loans have a much lower eligibility criterion and can be used in a similar manner to help pay off your credit card debt more quickly.
In Singapore, the only requirements to get a personal loan are to be between the ages of 21 and 65 years old and have an annual income of at least $20,000. This makes standard personal loans much easier to obtain. The effective interest rate for a personal loan typically ranges from 6.5% to 8.5%. This is comparable with debt consolidation loans and is once again significantly lower than the average interest rate of a credit card of 25%.
Not to mention the interest on credit cards is often compounded daily while the interest on personal loans is compounded monthly. Using the personal loan principal to pay off your credit card debt can save you hundreds of dollars on interest payments just by the way interest is accrued.
One good option for those seeking a personal loan as a form of debt consolidation is to get a personal loan through the loan broker Lendela. As a loan aggregator, Lendela shows all the different personal loans across both banks and licensed moneylenders to give you a bird's eye view of the best personal loans out there based on your credit profile.
Lendela also has a lower annual income criterion of S$1,200 a month, making it much more accessible for lower-income earners who might not qualify for a personal loan with other traditional banks but still want to take charge of their credit card repayment through a personal loan.
One good thing to note about Lendela is its fast cash disbursement. You can get your personal loan as quickly as within one day of loan approval. Since the interest accrued on credit cards is compounded daily, a quick turnaround on your personal loan application is key as the quicker you can pay off your credit card debt the better.
Now that you know all the benefits of taking up a personal loan as a form of debt consolidation, it’s time to consider if a personal loan is the best course of action for you to get your finances back on track. If you would like to explore more personal loan options, check out our guide to the best personal loans in Singapore for more information.