You might have asked yourself, “Is it possible to borrow loan to pay off my credit card?” Yes, it’s possible and even more advisable to do borrow money as a personal loan. Using credit cards to withdraw cash and use the money to pay off your credit card debt is a recipe for financial disaster. A personal loan has lower interest rates if you qualify, compared to the upfront fees charged by credit cards. Some banks may even impose hefty transaction fees just by using a credit card at an ATM machine.
If you are keen on making cash advances, you should make sure to pay off credit card debt as soon as possible. Once you take out cash from your card, it starts to accumulate interest until you repay the amount. Those who are unable to repay the exact amount by the end of a statement month would then have to make payments on interest fees. Depending on a bank’s terms and conditions, you can compare the interest rates on the unpaid amount from cash advances by looking at the compounded rate. This may not include charges for late repayments.
What Are the Fees on Cash Advances Charged by a Credit Card?
The average cash advance APR (annual percentage rate) is approximately 29% for credit cards in Singapore. The bank or credit card issuer usually charges 6% of the withdrawn amount or $15, whichever is higher. You could withdraw up to $250 to pay the $15 upfront charge. Take note that the upfront charge will be added to your outstanding balance. Unlike retail transactions, you don’t have an interest-free period to pay off the cash advance and upfront fee.
That’s why you need to think carefully when withdrawing money from credit cards to pay off your credit card debt. Personal loans are a better choice because of the lowest interest personal loan and higher loan amounts. How much is the cash advance limit from your credit card? Some banks only allow a certain portion like 30% of your credit line. Your credit score will also determine the actual amount. If you are unable to repay your balances in full every month, your credit card issuer may choose to lower the amount that you can take as a cash advance.
What About a Balance Transfer to a Credit Card?
If you are still looking for another payment strategy to pay off credit card debt aside from unsecured loans, then a balance transfer is a good option. How much money do you owe from a credit card? If paying the amount in full doesn’t seem possible, balance transfers work by consolidating the amount into a different card. Let’s say you have two cards: HSBC and DBS. HSBC says that you qualify for a balance transfer at 0% interest for three monthly payments.
You then look at your credit card statement for DBS and ask yourself, what is the next step for transferring my balance to another credit card? In some cases, you can just call HSBC and ask them about the rules on payments and fees if applicable. Most balance transfers, though, are transactions that make your payment much easier by simply dividing it into several payments with certain fees. Think of it as HSBC paying off what you owe to DBS. In exchange, HSBC lets you pay off the balance originally from DBS within a certain period. You should consider balance transfers when your bank won’t charge fees and interest.
Is It Bad to Pay Off Only the Minimum Amount for a Credit Card?
Paying off just the minimum amount every month isn’t really bad, as long as you don’t miss due dates on your payments. Your credit score, however, may be affected if you are just paying the minimum amount. This is the reason why many people end up paying a lot of money for interest fees alone. They rack up so much debt in the process.
If you choose a personal loan to repay your credit card debt, you should remember that you can’t make a minimum payment amount. A bank or licensed money lender will require you to make fixed debt payments every month for personal loans. Each debt payment for personal loans will follow a specific due date. Be sure to compare different personal loan offers before taking the next step to borrow money and pay your debt. Use a personal loan or debt comparison website to find out how long it can take to pay off debt from your credit cards.
How Long Does It Take to Pay Off a Credit Card?
Let’s say you earn $3,000 every month and owe $40,000 on three credit cards and a personal loan. If you pay a minimum of $1,275 every month, your interest fees on credit card debt and a personal loan may cost around $9,340 per year! It may also take you more than 10 years to pay off your debt from credit cards and a personal loan completely!
Consider Debt Consolidation Loans Instead
The huge interest rates and long payment timeline on credit cards mean that it’s better to apply for a debt consolidation loan. If you choose to pay off your credit card debt and personal loan through debt consolidation, your monthly installment loans may only cost around $640 by using the previous example.
It would also take you just eight years to pay off what you owe and save more than $55,000 in fees. You can compare personal loans for paying off credit card debt by looking at the effective interest rates. Of course, don’t borrow more on a personal loan than you need to pay off debt from your credit cards.
When you compare the options of cash advances, balance transfers and personal loans for paying off debt, the best strategy involves knowing the most cost-efficient one. A personal loan is a better way to borrow money than the other two for paying off your credit cards. Are you still confused about the best step to borrow money to pay off debt from your credit card? Click here to learn more about the best payment options and if you qualify for personal loans.