Oct 21, 2015

    Big mistake to roll over credit card payments

    MAKING only the minimum payment on your credit card bill is without a doubt one of the worst credit card mistakes you can make.

    In case you were wondering, the minimum payment has this name because you have to pay at least this much to avoid incurring an additional late payment fee on top of your outstanding credit card balance.

    It can be tempting to just make the minimum payment and roll over the rest of the balance to the next month.

    But this is not a good idea.

    About 20 per cent of credit card holders in Singapore fall prey to the trap of paying only the minimum on their credit card bill each month.

    If you are wondering how serious minimum card payments can be, consider these three things:


    The typical interest rate that applies to credit card debt is not only terribly high (often 20 per cent or higher) but also compounded on a monthly basis.

    Let's say you have a credit card bill of $3,000 and you only ever make the minimum payment. We'll assume the minimum payment is 5 per cent of the balance or $50, whichever is higher, and the interest charged on your outstanding balance is 20 per cent per annum or about 1.67 per cent per month.

    In the first month, you incur interest of about $50. An outstanding balance of $2,900 is rolled over. The next month, you incur an interest of $48. Again, your minimum payment of $145 is first used to pay off the interest before paying off the outstanding balance, and so on.

    Ultimately, it will take you close to five years to pay off the bill, and the total interest paid comes up to about $1,200 - almost half of your original bill.


    Even while making only the minimum payment required, you can still be tempted to keep using your credit card. But that is simply not sustainable.

    What happens if, in the earlier scenario, you continue to add $500 each month to your bill while only making the minimum payment? Theoretically, there is no way you would ever pay off the ballooning debt. Also, you would not get very far because you will hit your credit limit in no time.


    What if, instead of paying only the minimum sum, you tried to pay off the debt sooner by making at least the minimum payment or $100 each month, whichever is higher? You will be debt free faster and the total interest bill is cut down.

    Taking it a little further, what if you resolved to pay back $200 each month? You'll be debt free even sooner.

    If you are already using all your available cash to pay off another debt, then perhaps it makes sense to only make the minimum payment on your other cards so that you can avoid the late payment fee.

    Otherwise, avoid settling for the minimum - your bank account will thank you in the long run.

    The author is a contributing writer at, a comparison website for financial products.

    This article first appeared on