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​Understanding credit card interest and charges
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4 min. read

Credit cards should not be used as a long-term credit facility. Learn about credit card interest and other fees and charges, and the consequences of rolling over your balance.

Key takeaways
  • Unpaid credit card debt can snowball out of control
  • If you pay your credit card bill in full and on time, you won't get charged interest
  • The longer you owe the bank, the more interest you'll have to pay

What a credit card is and isn't

A credit card allows you to charge up to the credit limit set on the card. The outstanding balance represents what you owe. Interest is charged on the balance if you don't pay in full and choose to pay only the minimum amount due in your monthly statement.

If you have a credit card, you probably know how useful it can be, so much so that we often forget:

  • A credit card is a form of borrowing
  • Outstanding balance incurs high interest charges if it's not paid back in full

So while credit cards are convenient for cashless payment of goods and services, they should not be used as a long-term credit facility.

Credit card interest

The good news is that you don't have to pay any interest if you pay credit card bills in full before the due date.

But if you're unable to pay your credit card bill, you need to know that:

  • Interest is charged on a daily basis for the outstanding amount
  • Any interest not settled by the next payment due date will also attract interest in the next statement
  • Interest will also be charged on any new purchases until full settlement is received

In short, any unpaid amount on your current bill will be rolled over to the next bill, and charged an interest on top of that. The debt can easily snowball.

How credit card debt can snowball

Think that paying the minimum sum is good enough? Think again!

A debt of $5,000 could take more than 14 years to pay off

Assume you have a credit card bill of $5,000 with Bank X. Credit card interest is fixed at 25% per year and the minimum sum is $50 per month.

The table below illustrates what happens when you only pay the minimum sum. Under this scenario, by the time the debt is fully paid off, you would have paid almost 3 times your initial debt!

Initial debt $5,000
Monthly minimum sum payment $50 or Minimum 3% of principal owed (Take whichever is higher)           
Interest rate for overdue outstanding debt 25% per annum
Time taken to pay off all debts 175 months or 14.5 years
Total amount paid eventually $13,500
(Almost 3 times the original debt!)

What happens if you don't pay the minimum sum

If you are not able to pay the minimum sum for 2 consecutive months:

  • You will not be able to obtain new unsecured credit facilities
  • Your overdue credit lines will also be suspended
  • Late payments could also negatively affect your credit scores with the credit bureaus


The minimum payment always goes towards paying the interest charge first, then to paying the outstanding balance. So, out of the minimum sum of $50, after deducting to pay for interest due, only what's left is used to pay down the outstanding balance.

Late fee and finance charges

If you don't pay the minimum sum by the due date, the bank can impose a late fee and finance charges. This amount attracts interest on your next bill.

The late fee is often a flat $100, regardless of the size of the bill.

Other costs of credit cards

Even if you pay your credit card bill in full every month, having a credit card can come with other fees and charges. These include:

  • Annual fee – Charged every year as a subscription
  • Card replacement fee – If you lose your card and need a new one
  • Cash advances/withdrawal fee – Getting cash by drawing down from the credit limit

International transaction fees

Credit cards have made it easier for you to buy things overseas and online. However, you should be aware of the many fees associated with transacting with merchants located overseas.

Transactions in foreign currency

  • All foreign currency transactions will be converted to Singapore dollars (SGD) by your card issuing bank. Exchange rates used may vary from day to day and from bank to bank.
  • Check your card's terms and conditions for how the conversion is calculated and what fees are charged into the final SGD amount billed.
  • The card company (Mastercard or Visa) will also charge an international transaction fee to the card issuing bank. This is typically passed on to you as stated in the card's terms and conditions.

Overseas transactions in SGD

  • Some overseas merchants or websites list products and services in SGD or offer to convert your foreign currency transactions into SGD.
  • Exchange rates used are determined by the merchants and their payment processors. You should compare these rates against prevailing exchange rates.
  • Your credit card statement may show a higher amount than the SGD price charged by the merchant. This is due to an international transaction fee charged by the card company (Mastercard or Visa) to the card issuing bank.
  • The international transaction fee may also apply to cash withdrawals (in SGD) at overseas ATMs.

The bottom line

The longer you take to pay off your credit cards, the more interest you'll have to pay in the end. So, use your credit card for what it's intended for – short-term payments, not long-term loans.

Last updated on 01 Apr 2019