Being stuck in financial hardship due to mounting debts doesn't have to be permanent – debt consolidation loans and credit card balance transfers are ways that can help you manage your debt and potentially lead you towards finding relief from your current situation sooner rather than later! However, it’s important to understand the differences between the two, as each comes with its own advantages and drawbacks. Let us take a deeper look into debt consolidation vs balance transfer and weigh out the pros and cons so that you can make an informed decision on which solution is right for you.

What is a balance transfer?

A balance transfer simply moves your existing credit card balances from one card to another with a lower APR (annual percentage rate). This can help reduce the total amount of interest paid on those balances over time since the best cards in Singapore offer promotional 0% APR periods for balance transfers made within given periods of time.

The repayment period for credit card balance transfers in Singapore are typically much shorter than that of a personal loan, ranging approximately from 3 to 12 months. This means that it is important that you can ensure enough funds in the near future so that you can pay off your credit card debt in the following months. 

Benefits of a balance transfer

  • If you qualify for a 0% introductory period, you can significantly reduce your interest cost.

  • By saving money on interest charges, you may be able to pay off your debt faster.

  • You may be able to get a card that offers rewards and additional perks, like cash back and travel points.

Drawback of a balance transfer

  • You will likely need a strong credit score to apply for a balance transfer card. 

  • As the low interest rate does not last forever, you must clear it quickly before the promotional period ends or you may have to pay high interest charges.

  • A balance transfer fee may be charged.

  • If you do not spend responsibly, adding a new credit card can put you further into debt than before. 

What is debt consolidation?

Debt consolidation is a form of personal loan that enables the borrow roll multiple debts into a single loan with one payment amount. This means you can make just one payment each month instead of several payments for different debts. Typically, the new debt consolidation loan will have a lower interest rate than the combined loans, so that the borrower can save money on interest as well.

Benefits of a debt consolidation loan

  • You can simplify your finances with a fixed monthly payment and keep track of your debt more easily. 

  • A lower new interest rate can result in substantial savings over time.

  • You can borrow a large loan amount and clear the debt in fixed payments over a longer period of time.

Drawback of a debt consolidation loan

  • There is not a lot of payment flexibility as you may face an early repayment penalty. 

  • There may be high up-front costs.

  • Missing payments could negatively impact your credit score and set you back even further.

Debt Consolidation vs Balance Transfer: A Breakdown

A balance transfer credit card and debt consolidation loan are both be viable solutions to help you clear your financial debts in Singapore, and ultimately, what the best option is boils down to your personal circumstances and needs. 

As a general rule of thumb, debt consolidation makes sense for those who have multiple loans with varying interest rates that may take several years to pay off; while a balance transfer is best suited for those with high-interest credit card debt that can be paid off within the introductory period. Take a look at the table below for a more comprehensive comparison of debt consolidation vs balance transfer: 


Balance Transfer

Debt Consolidation

Interest 

  • Often an interest-free grace period, with variable rates upon its expiration

  • Interest rates range from around 4% to 36%

Repayment

  • Flexible as long as you meet the minimum repayment sum each month

  • Fixed rates and monthly payment. Early re-payment may incur charges.

Credit Score Requirement

  • Requires excellent credit score

  • More lenient, but the better your credit score, the lower your interest rate

Types of Debt

  • Designed for high-interest credit card debt

  • Can be used for various types of debt like medical bills and credit cards

Loan Duration

  • Typically several months to a year

  • Up to 10 years

Apply for a debt consolidation loan with Lendela 

If you’ve decided that a debt consolidation loan is a smart move for you, then the next step is to figure out where to get the best loan offer.  Finding a debt consolidation loan with attractive interest rates and a suitable repayment plan is key to helping you regain financial footing in the most effective way.

Lendela is Singapore’s leading personal loan comparison platform, working exclusively with trusted banks and financial institutions. The platform is dedicated to making personal loan application process faster and simpler. All you have to do is submit a short application form and you will get a personalised list of the best pre-approved debt consolidation loan offers, which you can then easily compare and choose from. Find the best debt consolidation loans in Singapore with Lendela today.

Key Takeaways

  • Credit card balance transfers and debt consolidation loans are both methods of debt consolidation with the objective of helping you get rid of credit card debt.
  • A credit card balance transfer refers to moving the credit card balance owed from one card to another with a 0% interest account.
  • A debt consolidation loan is used to combine multiple debts into a single loan with a fixed monthly payment to simplify your debt repayment process and lower your overall interest rate.
  • Generally, balance transfers are best for stretching out high-interest credit card debts for a few months while a debt consolidation loan is ideal for various types of debts that require a longer period of time (i.e., several years) to pay off.
  • Lendela simplifies the process of finding and securing the best debt consolidation loan in Singapore, so you can be well on your way to being debt-free.