Almost everyone has a credit card today because they’re incredibly convenient, but that doesn’t mean you can abuse your card in the long run. Financial specialists worldwide warn people about the dangers of relying exclusively on your credit card.
One of the most significant dangers is the snowballing interest rates.
If you’re not careful, your overdue balance can easily escape your control. That can happen when you’re not planning your budget carefully, and instead of repaying your credit card fully each month, you’re using that money for other purchases.
But the more you prolong your “tenure,” the more money you’ll have to give back.
So, if you want to avoid sinking into debt too much, read this guide below. We’ll analyse all the fees you can expect and help you foresee the usual traps associated with irresponsible credit card use.
Credit cards aren’t magical pieces of plastic that make money instantly appear in your wallet. Your credit card is much like a loan officer that lets you borrow a specific amount of money based on your financial status.
Thus, the outstanding balance on your credit card signifies the amount you owe. If you don’t pay this balance when the due date comes around, the bank will add interest.
And that’s a problem.
Many Singaporeans prefer to pay just the minimum sum to keep their credit cards going. Thus, each month they borrow more money and the existing debt plus accumulating interest rolls over into the next month.
Here’s the first trap:
Your credit card may resemble a loan-officer-genie that’s always in your pocket; instead, it’s an inanimate object, so it can’t directly hold you accountable.
You bear all the responsibility associated with understanding how credit cards work. So, remember that each time you’re using that piece of plastic, you’re taking a loan that comes with steep interest if you don’t reimburse it fully.
Instead, it might be more affordable to get a fixed loan for your financial needs.
The interest for your credit card is a whopping 0% if you manage to repay your entire debt before that balance is due. And that brings us to the second trap:
Thinking there’s always time.
So, let’s say you need $1,000 for some emergency repairs or for some new clothes. If you don’t have that money in your savings account, the temptation is to just complete your purchase with your credit card. After all, it only takes a swipe, right?
At this point, you probably think there’s plenty of time to save that money you withdrew within the next month.
No one honestly wishes to defer their credit card debt month after month.
And that’s the trap we mentioned above: people think they have time to save the money they got on their credit cards.
Here’s how to ascertain that:
Instead, here’s what most people do:
Warning: Each day of not reimbursing this credit card loan brings more interest on the outstanding sum. If you’re not paying that interest until the following term, your balance will incur even more interest. That interest also applies to the new things you’re purchasing until you’ve settled your bill.
Thus, anything you don’t pay rolls over month by month, accumulating increased interest so that your debt snowballs into oblivion.
Credit card interest rates can be 0% if you manage to pay on time.
This point refers to specific deals on credit cards where you get 0% interest for a particular period, most likely 6-12 months. During this time, you can make any purchase you want without having to worry about interest.
Let’s be honest here:
Absolution from guilt is an excellent hook.
And it’s also a neat trap – the third so far.
A 0% interest for a more extended period also comes with a sense of no-strings attached. Thus, you can be tempted to buy more than you need just for the heck of it.
Alternatively, you may use this sort of credit card to consolidate other loans. Remember to pay your loans while you don’t have to worry about extra interest if you’re doing that. Otherwise, you’re going to wake up with too much on your plate without even realising it.
If you’re still not convinced that you should repay your credit card balance in full each month, look at the example below.
Tl;dr: If you withdraw a mere $5,000 using your credit card, you need 14 1/2 years to pay that off, making just minimum repayments.
Remember: That minimum payment you’re making to keep your plastic genie alive goes towards your interest rate first. Only what remains after paying the interest rate covers the actual balance – and that’s why it takes so much time to pay that $5,000 balance.
Warning: If you don’t pay even the minimum required amount, you’ll suffer various penalties, such as:
The interest rate isn’t the only charge you have to worry about after getting your credit card. Other costs include:
Credit cards come with attractive deals, like no interest for a specific period or what’s advertised as a minimal interest of just around 2% per month. However, we’ve proven that even a small $5,000 loan can take you 15 years to repay.
The solution is to be responsible:
Alternatively, for fash cash within hours, you can consider a trustworthy financial institution like CreditMaster.
We have been operating in Singapore for several years and we offer low interest loans with fixed monthly installments. The best part is that we can disburse you the money within an hour should all be approved. It is a lot more affordable and stable.
This is a better solution than drowning in credit card debt.