How Do Balance Transfers In Malaysia Work?
High usage of credit cards can put you in financial trouble. According to the credit counseling and debt management agency (AKPK), 55% of its debt portfolio consists of loans on credit cards.
If you are struggling with credit card debt, one of the solutions you can turn to is a balance transfer plan. Ironically, this means offsetting your credit card balances … with another credit card. This can be a good tool for saving on interest payments, but it should be used with caution.
What is a balance transfer?
A balance transfer plan helps you transfer your debts from an existing credit card to another credit card in a new bank, at a lower interest rate starting at 0%.
However, the lower interest rate is only applicable for a promotional period (for example 6 or 12 months). This means that you will have to clear your debts on your new credit card in a short period of time to take advantage of the lower interest rate, otherwise your balance will be charged at the prevailing interest rate, which can be around 15%. .
How can a balance transfer help you save money?
The lower rate of a balance transfer saves you money because you may be able to pay lower (or zero) interest on your balance during the promotional period. Let’s look at an example:
|Without balance transfer||With balance transfer|
(balance + 3% of initial costs)
|Monthly payment||RM957.58 x 12 months||RM858 x 12 months|
|Total to pay||RM11,491||RM10,300|
Figures are for reference only
In the example above, instead of paying an interest rate of 18% on your balance, you will pay an interest rate of 0%. This saves you about RM100 per month, or RM1,191 in a year.
Maybank 2 Platinum Card
Get an interest rate of 0% when you transfer your balances over a 12 month period
5% cashback on weekend transactions
How to Request a Balance Transfer Plan
If you’ve already compared the plans offered by different banks and figured out that it can work for you in the long run, here are the steps you should take.
|Step 1||Make at least the minimum payment on your last invoice.|
|2nd step||Visit your new bank with a copy of your latest credit card statement. Create a plan to pay off the balance you transfer with the staff who help you. Make sure you understand all the fees, interest rates and conditions. Register for your new card and complete the balance transfer form.|
Alternatively, you can do it online. Check your new bank’s website for how to request a balance transfer.
|Stage 3||While waiting for confirmation from your new card company, be sure to continue making at least the minimum payment on your old card during the due dates.|
|Step 4||Receive confirmation of your new account and a balance transfer notice.|
|Step 5||Check that the amount transferred is reflected in your old account. If you have transferred everything to your new card, the last statement on your old card must have a zero balance.|
|Step 6||If necessary, end your old card. But make sure you understand how it can affect you.|
|Step 7||Your balance transfer was successful. Continue to pay monthly payments on your new card to avoid any unpleasant surprises!|
Beware of these balance transfer fees
While a balance transfer may seem like a good idea, you will need to be careful about these fees which can offset your interest savings:
- Initial costs: Some banks charge an initial fee of up to 3% on your balance. This varies depending on your bank and your mandate. An initial fee of 3% means that if you transfer 5,000 RM, you will have to pay 150 RM of fees.
- Late repayment charges: You will need to pay a minimum monthly deposit (usually 5% of your balance), otherwise you may incur late repayment charges (around 1.5% per month).
- Early settlement fees: If you clear your balance before the end of the mandate, your bank may impose early settlement fees, which vary depending on your bank. It is best to check with your bank how much it will cost before settling your balance.
Balance transfer is not for everyone
You should only make a balance transfer if you can reimburse your balances during the term of the mandate, otherwise you will incur late repayment charges. In addition, the lower interest rate or 0% is only applicable for the promotional period of the mandate. It is important to pay more than the minimum monthly payment each month, so that you can empty your balance during the term of the mandate – otherwise, you would incur the current interest rate on credit cards, which can worsen your situation. of debt.
On the other hand, if you are financially disciplined and can afford to pay off your balance during your tenure, a balance transfer can help you reduce your interest payments. For some people, this can be a good way to manage short-term debt.
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