You probably never even thought that this was a possibility. But it is! You could reduce the interest rates on your credit cards and personal loans by using any of the following methods:
1. Balance transfer
You could transfer your credit card debt to a 0% interest balance transfer. So, instead of paying multiple credit cards with varying rates of interest, you can transfer the outstanding balance to a single credit card up to the credit limit available on that card. Most interest-free balance transfers tend to have 6-month or 12-month tenures. While balance transfers are a great way to reduce the interest payable, you should remember to not use this credit card for retail purchases since the 0% interest will not be applicable to these purchases. Moreover, you should look at paying the entire amount before the end of the interest-free period. This is because the interest rate shoots up to the card’s prevailing rate of interest after the end of the 0% interest tenure.
2. Personal loan
You could also consider taking a personal loan to pay your outstanding debt and make monthly instalment payments towards the loan instead. This idea works because the interest rates on personal loans are lower than that on credit cards. The downside to this though is that you may not always qualify for an amount that is enough to help you clear your debt. Moreover, the longer the tenure of the loan, the more interest you will end up paying even if the rate of interest is low.
3. Debt Consolidation Plan (DCP)
When you find that your debt is at least 12 times greater than your monthly income and you are not able to keep track of the number of payments that you need to make, a DCP is a good idea. DCPs help you consolidate multiple debts from various banks into one debt with one financial institution. So, you only end up making one payment for all of your debts. In fact, DCPs have tenures that extend up to 10 years. For instance, if you decide to consolidate your debt with POSB, then you can choose a tenure ranging from one year to eight years and the effective interest rate (EIR) starts at 7.23% p.a. This rate is much lower than credit card interest rates.