Ravi Chandran
Credit card interest rates are steep and can set you down real deep if you are not careful in how you use it
By: Hitesh Khan/
If used responsibly, credit cards are a great loan source but can cause undue hardship to those who are not aware of the costs. They are not considered to be sources of longer-term financing. However, they can be a great loan source for those who need money quickly and intend to repay the borrowed amount in short order.
If an individual needs to borrow a small amount of money for a short period, a credit card (or a cash advance on a credit card) may not be a bad idea, and may be a great loan source. After all, there are no application fees (assuming you already have a card).
For those who pay off their entire balance at the end of every month, credit card interest rates are a non-issue. They can also be a great loan source, and be a source of 0% financing.
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On the flip side, if a balance is carried over, credit cards can carry exorbitant interest rate charges (often in excess of 24% annually). Credit card companies will usually only lend or extend a small amount of money or credit to the individual. In other words, credit card companies typically don’t make mortgages, which can be a disadvantage for those that need longer-term financing or for those that wish to make an exceptionally large purchase (such as a new car). Borrowing too much money through credit cards could reduce your chances of getting loans or additional credit from other lending institutions.
Credit cards can be both a boon and a great loan source, as well as a curse if you are not careful with credit card interest rates.
If you’re strapped for cash and really want to make that purchase, you can charge it and pay it off later. And if you have a rewards card, it may be even better because you can collect points or cash back. But, if you’re prone to carrying a balance, you’ll have to wait longer to pay it off because of the hefty interest that some companies charge.
High credit card interest rates means carrying a balance on your card can be very costly. Pay off your credit card balance entirely. With the astronomical credit card interest rates companies charge, it simply does not make sense, if you have savings elsewhere, to carry a balance. If you can’t completely pay off your balance, at least increase your monthly payment, even a little bit. It will be more profitable in the long run.
If you get a credit card, you should plan to pay the full amount owed every month. That way you avoid the exorbitant credit card interest rates charge, and you also benefit from the grace period (which in effect enables you to borrow money for a few weeks for free).
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In order to accomplish this, determine how much you’re able to pay on your credit card bill each month and then stick to that limit. At the end of the month, pay the full amount, just as if it were any other bill, like rent or utilities. Also, examine each monthly statement to make sure there are no inaccuracies or fraudulent activity, and report anything you find immediately.
If you usually pay the balance in full but are going to be late with one payment, call the credit card company and find out how much you will be charged as a penalty. Include that amount in your check, so that the fee doesn’t appear as a balance on the following bill, which would eliminate the grace period and result in more interest charges.
If you expect to have difficulty paying off the bill every month, consider using a debit card (which draws from your bank account) or an American Express card (which doesn’t allow you to carry a balance from one month to the next). Remember that if you have credit card debt, you’re really borrowing from your future earnings, which is a bad habit to get into.
If you have too much credit card debt, don’t expect a quick fix.
Applicants of credit cards will in most instances need to be above 21 years, earn a gross annual income of S$30,000 if they are Singaporeans, or S$45,000 if they are foreigners. Fighting your way out of debt takes time and perseverance. You should do it as quickly as you can, but understand that you’re fighting an uphill battle that might take some time.
Credit card advance on may be useful especially when you have excellent credit, and may need a little extra money – for example, for your daughter’s wedding. Most bank cards will offer cash advances with a cheque or by using the card to withdraw cash from an ATM machine, depending on the amount needed.
However, using your credit card advance is typically the most expensive way to borrow money.
The interest rate for credit card advances on a bank card are usually in the double digits and often as high as 20 per cent to 30 per cent. A better, less expensive option for you may be to apply for a personal loan at your bank or credit co-operative. If you have excellent credit, you should qualify for a loan with a much lower interest rate than what you would pay using cash advances from a credit card.
