In most cases, the annual interest rate for credit card balances is more than 30%. If you have an unpaid credit card balance, you will need to pay hefty amounts in interest every month. Not only that, but all new transactions, existing interest-free instalments and autopay arrangements through your credit card (such as monthly insurance premiums) will be charged interest immediately. The longer you take to pay off the balance, the more money it costs you.

Minimum payment pitfall

Some people may think that repaying the “minimum payment amount” is fairly easy and doing so can help them keep more cash in hand. In fact, this would only worsen the debt problem. For example, assuming there is an outstanding balance of $20,000 in your credit card account without further transactions and the monthly interest rate is at 2.5% (annualised percentage rate of 35%), it would take 26 years to repay the whole sum. The total interest would be $47,000, i.e. 2.7 times of the original outstanding balance! (Note: For banks that require a higher amount of minimum payment, the pay off period will be shorter and total interest will be smaller)

Remember, paying the “minimum payment amount” is not a solution to your debt problem; it will only worsen your financial situation. If there is any unpaid balance on your credit card, do settle it as soon as possible to save on interest. You can use the below calculator to work out the required monthly repayment amount:

Outstanding amount

Repayment period

Annualised Percentage Rate

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A point to note for cash instalment plan

Many credit cards offer cash instalment plans, i.e. cash out your credit limit from credit card and repay by monthly instalment. The interest or handling fee of a cash instalment is usually lower than the annual interest rate for credit card balances. The monthly repayment will be billed to the credit card account, if you do not settle the monthly repayment amount in full (some people may even pay the minimum payment amount), the outstanding amount will be charged at the interest rate for credit card balances which is usually more than 30% and much higher than the interest rate or handling fee of the cash instalment plan. So, bear in mind that you should always settle the full amount of your credit card statement including retail spending transactions and monthly repayment of cash instalment plan.