Singapore shopping is one of the best experiences in the world, especially if you have sufficient cash to buy everything you want and need. However, some shoppers find credit card convenience the best way to shop. After all, you get excellent offers from numerous merchants and possibly get discounts and freebies thanks to its reward system.
Unfortunately, credit cards are a double-edged sword. It can help you pay for your needs as a revolving line of credit. Plus, its installation payment option with select merchants at 0% interest is helpful because you won’t have to pay additional expenses. However, with poor credit card management practices, it can quickly get you into deep debt.
However, it’s enticing to just keep spending and worry about paying later. After all, credit card companies let you get away with paying only your credit card minimum payment. The interest rates can pile up, but banks and credit card companies will allow you the longest time extension to pay for all your debt.
In this post, you’ll learn that having the opportunity to get away with credit card minimum payment is more of a borrower’s disadvantage and an enormous advantage to banks and credit card companies.
The Credit Card’s Main Function
Singaporeans with excellent credit scores and remarkable performance in their previous transactions with a bank or credit company have the biggest chance of gaining credit card application approval. To give credit is to appreciate or respect the capability a person has accomplished. In this case, banks provide revolving credit options, such as credit cards, to customers with consistently excellent financial management and performance.
A credit card is a poor long-term financing solution because it can only afford commercial purchases. Most often, first-time credit card holders have 30-50% of their monthly pay as their credit limit. If they dependably manage their finances and completely pay their debts before deadlines, they have the best chance to receive higher loan limits, which progress until they need to move on to a higher credit limit credit card.
On the other hand, credit cards have high interest rates if you’re not paying a merchant partnering with your credit card company. For example, if you purchase a new appliance with a non zero-interest 12 months installment with a card that has a 16% interest rate, you’re paying extra. This outcome is still true even if you exceed the monthly minimum but never pay the entire credit limit (for maxed-out cards).
Let’s explore credit card minimum payment amount due and its implications below.
Minimum Payment Monthly Implications
You have a credit card from a renowned bank. Currently, you have about S $500 in debts and it pegs your monthly credit card interest at 10% on your remaining balance after addressing the credit card minimum payment amount due of 30% starting at S $150.
Here is what you’ll face in the following month:
Credit Card Balance With Minimum Payment: S $385 outstanding balance (Plus S $35 due to 10% credit card interest rate accrued)
Credit Card Balance With Double The Minimum Payment: S $220 outstanding balance (Plus S $20 due to 10% credit card interest rate accrued)
You can expect that you can drag on your credit card repayments by paying the credit card’s minimum. Paying them completely before the monthly cut off is ideal. Alternatively, here is the period length until you can completely pay for your credit card debt using the examples and details above:
Credit card minimum payments only: 12-15 months approximately
Double the minimum payments: 7-10 months approximately
Effect of Credit Card Debt Minimum Debt Payments
Credit card companies and banks understand that borrowers might face financial difficulties due to a sudden fluke or change of plans. We can say that these financial institutions included credit card minimum payments as an “emergency escape” for borrowers to avoid enormous penalties, allowing them to pay only the interest plus the complete payment during the following month.
However, paying the credit card minimum for an expanded number of months or years can send you spiraling into deep debt, having you pay lenders much more than you actually owe them. While a minimum credit card payment might seem ideal because it keeps your financing afloat and suits your current budget, it will wreak havoc on your credit scores and other factors we’ll discuss below.
Problems You’ll Face When You Pay Only Your Credit Card Minimums Regularly
Banks and credit card companies gave you the opportunity to use their revolving credit service because of their good faith in your financial management capabilities. However, if you pay only the credit card minimum, they will view it as a sign of poor financial management. Both financial institutions will increasingly consider you a risky borrower if you only continue paying the minimum.
Furthermore, even if you haven’t made your way out of your debt yet, you’ll be facing additional challenges encouraging you to hasten your complete payments, such as the following.
1. Late Fees
Credit card minimum payments mostly save you from late fees. However, some banks and card companies will still charge you late fees if you’ve failed to make complete payments for a number of months. In most cases, these institutions might charge you after paying only the minimum payment after 3-5 months.
If you plan to use your credit cards for long-term payment options, it’s best to work with the credit card’s partner merchants, which guarantee a 12-month, zero-interest installment plan most of the time. In doing so, you can avoid the enormous late fees above your outstanding payments.
2. APR Penalties
Annual percentage rate penalties are normal for long-term installment plans with partner merchants. For example, partner merchants have a 24-month installment plan available for credit card holders. During your first year, you’ll have 0% interest. Then, you’ll face a 2% interest rate increase on all your payments during the next half.
If you pay only the credit card minimum, you’ll end up paying APR penalties. It’s best to check your terms and conditions about the heights your APR penalties can go. However, you can expect it to reach exceptional ceilings with a non-partner merchant, and you’ve only paid your credit card’s interest charges for more than 12 months.
3. Poorer Credit Scores Than Before
Even if you’re always “off the hook” by paying the credit card minimum payment, banks and card companies are always wary of this payment behavior. A credit card’s objective is to encourage you to spend and manage your finances effectively. Failure to do so reaps the opposite of these intentions, leading to problematic results reflecting on your credit scores.
Actually, You’re Not Just Paying Credit Card Minimums
When you pay credit card minimums, you’re dealing with interest payments plus these two other expense-bubbling factors. Remember, credit cards are a privilege, and you’re paying for a “membership” too.
1. Annual Fees
All credit card companies and banks charge annual fees for credit card usage. Like annually-paid memberships, you pay them a regular fixed sum, allowing them to provide you the best deals and expand their merchant network. If you continue paying the minimum credit card bill, you risk having high-interest charges plus your annual fees ballooning your already-inflamed billing statement.
If you don’t pay annual fees, your credit card provider has legal rights to discontinue service or heavily penalize you for your actions. In case of high unpaid debt and missed annual payments, your bank or credit provider can file a claim against you in Singapore’s claims court.
2. Cash Advance and Withdrawal Fees
Credit companies and banks clearly make their point with credit cards: they mean for you to use it with their partner merchants to incentivize spending. Therefore, cash advances, like payday loans with licensed moneylenders, will cost money. However, rare, special credit cards can have free cash advance or withdrawal fees.
Good Spending Habits: The Best Way to Use Your Credit Card
Developing good financial management habits is the key to maximizing your credit card usage. If you’re only performing the minimum payments on your existing credit card balance, it means you’ve overspent beyond your regular budget.
A good rule of thumb is to list down every credit card purchase you make. Then, vow to pay them in full every month. If you need anything, check out all the card company’s partner merchants for 0% installment deals, which are greatly advantageous for any buyer.
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