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How to avoid being trapped as a borrower

Credit card marketing strategies have become more aggressive and innovative to entice credit cardholders not to pay the outstanding amounts in full and to continue carrying forward the outstanding balances each month. These borrowers or 'revolvers' may think that it is beneficial and convenient to just pay only the minimum payment each month, but it is just the opposite.

You should be aware of the consequences of paying only the minimum repayment amount by the due date of each month. Not only will you incur more interest charges but also lengthen the time taken to repay your balance.

Many people do not realise the impact of accumulating their monthly credit card balances and end up with huge debts.

Below is an illustration of the repayment period and the total interest charged if you pay only the minimum monthly payment each month, i.e. 5% of the outstanding balance.

For example, if your outstanding balance is RM1,000 and you pay only the minimum monthly payment, it will take you about 5.8 years to settle your total debt and would cost you RM382 in interest charges, based on an interest rate of 18% per annum.
OUTSTANDING AMOUNTS
RM500 RM1,000 RM5,000 RM10,000
Years Interest
(RM)
Years Interest
(RM)
Years Interest
(RM)
Years Interest
(RM)
4.2 168 5.8 382 9.6 2,097 11.2 4,240

Be aware of the

consequences

of paying only the

minimum repayment

amount each month


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Reprinted with permission from BankingInfo (A Consumer Education Programme)


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Knowledge Base ID :   1226
Last Reviewed :   May 22, 2014
Source :   BankingInfo
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