Credit Card Funds Transfer – One Way to Get Out of a Debt Crisis

This is article first appeared in The Kiam Siap Life. You can view the original article HERE.

At TKSL, we always preach to only spend and borrow what you can afford and pay it back on time. That is when credit cards really work to your favour and advantage by reaping all its rewards, cashbacks and miles. But sometimes life is not as smooth as we hope it would be and perhaps we may need some extra time to pay our loans back or some extra cash for a big ticket purchase. Whatever the reason is that causes us to end up in this position, we feel there is a need to know how to legally (of course) find a way out of this situation. Read on to find out more about how Credit Card Funds Transfers can help you and work to your benefit.

What is a Credit Card Funds Transfer?

A Credit Card Funds Transfer (CCFT) allows you to transfer all your current outstanding loan amount from another bank (i.e. bank’s credit card) to your Standard Chartered Credit Card and offers you a much lower interest rate to pay off that amount within a period of time (usually around 3 – 12 months) and hence, CCFT essentially buys you time by dividing your repayments into smaller, more manageable amounts during this period.

And while there are many targeted ads to promote its 0% interest rate for X number of months (which essentially is true), there are other processing fees involved (0.7% – 5%) and we certainly want to ensure that you are aware of these fine prints!

Take an example where I have a debt amount of $10,000. Here are the common terms you would see in a Credit Card Funds Transfer information page:

• Transfer/ Borrowing Amount: The amount you want to borrow or transfer on your outstanding amount. The amount is based on your existing credit card or credit line limit.
• Tenure: The loan period in which you wish to borrow for (usually: 3/6/9/12 months)
• Processing Fee Rate: The administrative fees in processing the loan request
• Effective Interest Rate (EIR): This interest rate reflects the true cost of borrowing taking into consideration the compounding effect of interest rates by the number of months borrowed. Each bank has their own calculation.
• Interest Rate: This interest-free rate only applies to the loan tenure for (in this case) 6 months. Should there be a late payment or delayed payment beyond the agreed upon tenure, there will be additional charges involved (Refer to “Prevailing Rate”).
• Prevailing Rate: Interest rate which loan is subjected to after the CCFT loan period ends.

In this case, I will be borrowing (transferring an outstanding loan of) $10,000 at 0% for a 6 months loan period with a total processing fee (EIR) of $345 (10,000 X 3.45%). In essence, I need to pay off a total amount of $10,345 within the 6 months tenure.

If the loan cannot be paid within the 6 months (after the CCFT loan period ends), the remaining loan will be subjected to a 26.9% p.a interest rate, and let’s just say that this isn’t a pretty scenario.

What Can Credit Card Funds Transfer be Used For?

When used carefully, CCFT is great for taking advantage of the 0% interest to break down an outstanding lump sum debt into manageable amounts within a period of time. We want to once again emphasise that this would be extremely beneficial when you stay disciplined to pay off that amount within the stipulated time frame. Otherwise, incurring monthly late payments and expiring your tenure might get you deeper into debt, which effectively places you back to where you were before. Once bitten, twice shy la hor…

1. Solution to manage or get out of debt: (For individuals who genuinely want to clear their debt in a short period):

• Credit Card Debt: Person A who is unable to pay off a HUGE outstanding amount in his/her credit card for several months, and have been accumulating high monthly charges of 20%+ on interest rates and late fees.

2. Extra source of funds:

• Emergency Fund: Person B who needs a lump sum amount quick to pay for a hospital bill and cannot pay the full amount within the next month.
• Big Ticket Purchase: Person C who made a big ticket purchase (like a new sofa set/ washing machine/ refrigerator)and wants to manage his/her cashflow by breaking it into smaller amounts

Who Should Use Credit Card Funds Transfer?

GOOD for Individuals:

• Who don’t have the money to settle a lump sum payment
• Who don’t want to carry high interest charges, while maintaining the discipline to pay off their credit card debts over a period of time.

NOT for Individuals:

• Who can’t repay/ doesn’t have the confidence to pay the required sum over the tenure term
• Who thinks that this method may buy more time, without a backup plan of securing the amount of money to repay.

The Must Knows of a Credit Card Funds Transfer

Every product has its pros and cons. Understanding how it works will no doubt help you make better financial decisions, while a “bo-chup” attitude may cause you to get into deeper financial problems.

PROS:

• Save on interest rates Transferring your outstanding balance would help save at least 10% or more on interest rates especially when you are already slapped with an interest rate of 20% or more on your existing outstanding credit cards. Once again, we want to stress that this is only if you can pay it off within the stipulated period and not miss any instalment payments!
• Bite-sized manageable loan instalments You are able to break down a loan of let’s say $10K into smaller manageable payments of around $1K monthly over a 12 month term. This could reduce your financial stress of a huge amount and free up some spare cash for better cash flow.
• Standard fees & rates during the agreed tenure 0% interest only applies throughout the selected tenure (3 – 12 months), so use it to your advantage.
• Utilising as bulk payment for instalment Having used CCFT occasionally, I would rather take advantage of the 0% interest and low processing fees to breakdown my large spending items (e.g. annual memberships, subscription packages, big ticket items, etc.) into smaller manageable payments and free up my cashflow.

CONS:

• Initial processing fee The initial processing fee is calculated based on a percentage of the loan amount. This does not make the CCFT totally free at 0%.
• “Perks” are short term To maximise the benefits, it is best to complete the payment within the term period of 3 – 12 months. Otherwise the late payment fees and prevailing EIR 26.9% will kick in after the term period is over.
• Penalties for any missed instalment payments Charges for late payments starts from $80 and stacks up the longer you delay. This would end up adding to your debt which you were trying to reduce in the first place.

Our Closing Thoughts on Credit Card Funds Transfer

We cannot emphasise this enough! Credit Card Funds Transfer is GREAT for individuals who genuinely need the extra time and money and pay off their debts ON TIME. If you do consider this product, do ensure that sufficient research and proper calculations have been done and last but not least, stay disciplined in your financial journey!

For new Standard Chartered Credit Cardholders, apply HERE to get up to S$230 cashback when you make an eligible transaction (with no minimum spend required). This offer is exclusive to TKSL’s readers, so apply through this link to get the $230 cashback!

Existing Standard Chartered Credit Cardholder may apply for their Credit Card Funds Transfer HERE and get up to S$20,000 cash at 0% interest p.a. with 100% cashback on your processing fee plus S$80 bonus cashback.

For full The Kiam Siap Life x Standard Chartered Credit Cards Sign-Up Bonus Cashback Promotion Terms & Conditions, please click HERE.

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