Credit cards should not be used as a long-term credit facility. Learn about credit card interest and other fees and charges, and the consequences of rolling over your balance. Show
Key takeaways
What a credit card is and isn'tA credit card allows you to charge up to the credit limit set on the card. The outstanding balance represents what you owe. Interest is charged on the balance if you don't pay in full and choose to pay only the minimum amount due in your monthly statement. If you have a credit card, you probably know how useful it can be, so much so that we often forget:
So while credit cards are convenient for cashless payment of goods and services, they should not be used as a long-term credit facility. The good news is that you don't have to pay any interest if you pay credit card bills in full before the due date. But if you're unable to pay your credit card bill, you need to know that:
In short, any unpaid amount on your current bill will be rolled over to the next bill, and charged an interest on top of that. The debt can easily snowball. How credit card debt can snowballThink that paying the minimum sum is good enough? Think again! A debt of $5,000 could take more than 14 years to pay offAssume you have a credit card bill of $5,000 with Bank X. Credit card interest is fixed at 25% per year and the minimum sum is $50 per month. The table below illustrates what happens when you only pay the minimum sum. Under this scenario, by the time the debt is fully paid off, you would have paid almost 3 times your initial debt!
What happens if you don't pay the minimum sumIf you are not able to pay the minimum sum for 2 consecutive months:
NoteThe minimum payment always goes towards paying the interest charge first, then to paying the outstanding balance. So, out of the minimum sum of $50, after deducting to pay for interest due, only what's left is used to pay down the outstanding balance. Late fee and finance chargesIf you don't pay the minimum sum by the due date, the bank can impose a late fee and finance charges. This amount attracts interest on your next bill. The late fee is often a flat $100, regardless of the size of the bill. Other costs of credit cardsEven if you pay your credit card bill in full every month, having a credit card can come with other fees and charges. These include:
International transaction feesCredit cards have made it easier for you to buy things overseas and online. However, you should be aware of the many fees associated with transacting with merchants located overseas. Transactions in foreign currency
Overseas transactions in SGD
The bottom lineThe longer you take to pay off your credit cards, the more interest you'll have to pay in the end. So, use your credit card for what it's intended for – short-term payments, not long-term loans. What happens if you forget to pay your credit card bill for 3 months?If you continue to not pay, your issuer may close your account, though you'll still be responsible for the bill. If you don't pay your credit card bill for a long enough time, your issuer could eventually sue you for repayment or sell your debt to a collections agency (which could then sue you).
How can I get my credit card charges waived?Call the customer service number on your statement or the back of your card, and provide identifying information like your name and account number. Then, ask if you can have a waiver for your annual fee. If this is successful, you're done.
Can I skip a month of credit card payment?Missed payments could lead to more than just late fees, though. Depending on your card issuer, you may see an increase in your interest rate if you don't make a required payment within 60 days of the due date. And depending on how late your payment is, your credit scores might take a hit.
How can I get a late payment waived?If you want to have your late fee removed, you can ask your credit card issuer to get it waived. Whether they accept your request is completely up to their discretion, but if your payment history is good and your payments have been on-time, they are likely to accept.
|