How many credit card holders in Singapore carry a debt? Well, data from the Singapore Credit Bureau revealed that 1 out of 5 credit card users in Singapore in 2014 only paid the minimum sum on their credit cards.
This is a problem because it means that you start paying interest on your debt, which could make it spiral out of control.
Chances are that you know somebody struggling with credit card debt, or you may be struggling with it yourself. So, to help you get started, GET.com has listed 4 things you should know about credit card debt and how to get rid of it.
1. The Basic Question – How Do You Incur Credit Card Debt?
Technically, each time you use your credit card to buy something, you incur a debt which you have to pay back to the bank.
But this short-term debt has zero interest cost – that is, as long as you pay off the balance in full within the specified deadline.
If you're unable to pay off your balance in full, or if you miss a payment on your credit card, the bank imposes an interest charge on the outstanding balance (and possibly other penalties such as late repayment fees), and the new balance is "rolled over" to the next billing period.
As credit card debt tends to incur very high interest rates (at least 20% per annum), the debt amount can increase very quickly.
Here you can find out more about the dangers of minimum credit card repayments.
2. The Problem Is More Serious Than You Think
The issue is probably a lot more serious than you think. In Singapore, credit card and charge card debt, in the form of balances rolled over to the next statement, doubled over the past decade, from over $2.67 billion (Jan 2005) to over $5.41 billion (Nov 2015). That's a scary-sounding growth rate! (You can check out the statistics on MAS' website.)
Furthermore, there were a total of 9.5 million credit cards in Singapore (both main and
supplementary cards) as of Nov 2015. During the same period, the total rollover balance across all credit cards amounted to around $5.41 billion. That means an average of $569 in credit card debt per card.
Of course, the majority of credit card users don't rack up debt. Assuming that just 1 out of 5 of the 9.5 million cards do so, the average debt per card then increases to about $2847.
Do you think you might have a debt problem? Use this checklist to get out of debt.
3. Credit Card Debt Hurts Your Other Loans
Apart from the headache of trying to pay off a snowballing credit card debt, there are two other things you need to consider if you plan to apply for a loan anytime soon.
- Under the Total Debt Servicing Framework, which the MAS introduced in 2013, all your outstanding debt (which includes personal loans, home loans, and credit card debt) cannot exceed 60% of your gross monthly income. Credit card debt can significantly limit the loan amount you can borrow.
- Outstanding credit card balances and a history of late payments will naturally drag down your credit score. Even if you do manage to pay off your debt, the history of late payments stays on your record for 12 months, and will affect any loan applications you make in the meantime.
So what should you do if you have a debt problem?
4. How To Get Rid Of Credit Card Debt
First of all, check what your card's interest rate is per annum. If you're carrying a balance (debt) on one or more cards with a crushing interest rate, it might be a good idea to consolidate your debt in a single low interest card.
To do this you need to get a balance transfer credit card. A balance transfer card lets you transfer the balance you are carrying on one or several cards to your new card.
Balance transfer cards come with low introductory interest rates for a certain period of time. Look for one with a 0% intro interest rate to avoid paying any interest during the intro period.
If you can manage to pay your debt off in full before the intro period ends you will avoid paying any interest on your balance!
The catch is that most cards have a balance transfer processing fee, although if you're transferring a large balance (usually over $10k), many banks waive the fee. However, fees usually range from 1%-3%, so they can be quite a bit lower than the interest you are currently paying.
You also have to make sure to check the new card's interest rate after the intro period, because if you haven't managed to pay off your debt in full before then, the new card's ongoing interest rate will kick in.
After taking the necessary measures to pay off your debt, you have to take a moment to examine your spending habits and find out why you got into debt in the first place.
Have you been spending beyond your means? Do you need to learn how to create a budget and stick to it? Do you need another source of income? All these questions are important things to ask yourself so that you can avoid falling into bad financial habits again and start living a debt-free life.
You may also want to check out how the Repayment Assistance Scheme (RAS) helps Singaporeans get out of debt.
Here are the best balance transfer credit cards to help you get rid of debt:
|Credit Card||Features||Intro Interest p.a.||Standard Interest p.a.||Annual Fee||Minimum Income||We least like||Related links|
Citibank Rewards Card VISA
|Transfer your outstanding balances on any other bank's credit card or credit line to Citibank at 0% nominal interest rate for 3/6/12 months with an upfront service fee from 1.58%. Eligible for new Citibank customers who apply for Citibank Ready Credit account with minimum $500 loan||26% p.a.||$192.60 waived the first year||S$30,000 per annum (Singaporeans and PRs); S$42,000 per annum (Foreigners)||Related Links Read our review of Citibank Rewards Card VISA or view more details of Citibank Rewards Card VISA. See more Citibank credit cards.|
Citi Cash Back Card
|Transfer your outstanding balances on any other bank's credit card or credit line to Citibank at 0% nominal interest rate for 3/6/12 months with upfront service fee from 1.58%. Eligible for new Citibank customers who apply for Citibank Ready Credit account with minimum $500 loan.||26% per annum||$192.60 (first year annual fee waiver)||For Singaporeans and PRs, minimum annual income of $30,000, for foreigners $42,000.||Related Links Read our review of Citi Cash Back Card or view more details of Citi Cash Back Card. See more Citibank credit cards.|
HSBC Advance Credit Card
|0.8% p.a. for 6 months* on balance transfers||25.9%||$192.60, Waived for HSBC Advance Customers||S$30,000 p.a. (Singapore Citizens and PR) S$40,000 p.a. (Foreigners and Self Employed)||Related Links Read our review of HSBC Advance Credit Card or view more details of HSBC Advance Credit Card. See more HSBC credit cards.|
Citi PremierMiles Visa Card
|Transfer your outstanding balances on any other bank's credit card or credit line to Citibank at 0% nominal interest rate for 3/6/12 months with upfront service fee from 1.58%. Eligible for new Citibank customers who apply for Citibank Ready Credit account with minimum $500 loan.||26% per annum||$192.60 (first year annual fee waiver)||S$30,000 for Singaporean, Singapore PR; and S$42,000 for Foreigners||Related Links Read our review of Citi PremierMiles Visa Card or view more details of Citi PremierMiles Visa Card. See more Citibank credit cards.|
HSBC's Revolution Credit Card
|2.50% p.a. for 6 months on balance transfers or 4.88% p.a. for 12 months on balance transfers both with a processing fee of $88||25.9% p.a.||S$150 waived for the first 2 years||S$30,000 p.a. (Singapore Citizens and PR)||Related Links Read our review of HSBC's Revolution Credit Card or view more details of HSBC's Revolution Credit Card. See more HSBC credit cards.|