Prevention is better than cure they say. Your proclivity of paying off your credit card debt mainly depends on your spending and saving habits. In order to avoid falling into a debt-trap, you need a discipline and patience. This is where getting a window between payments is helpful.
After you use your credit card to purchase something or use any service, you are required to pay back that amount to the bank. It is, after all a kind of borrowing. After you have swiped your card, you have the option of repaying the entire amount, partial amount or pay just the minimum to avoid late payment fee.
The grace period begins from when you make the transaction to the next 21 to 27 days. You can repay the amount without interest. The grace period makes sense only if you do not have outstanding payments. Otherwise, the interest will just keep piling up and you will find yourself in the loop of unending debt.
The higher the interest rates, the more difficult it is to pay off. Most banks in Singapore charge an interest rate of around 24% to 28% per year. Therefore, it is wiser to pay back as much as possible to avoid paying steep interest rates.
If you already have outstanding dues, the bank will not give you a grace period. It will continue to charge interest for every transaction you make using the card. This amount keeps increasing if you do not take efforts to pay it back.
There is no grace period for cash advance taken through your card. Credit card cash advance is the cash that your card issuer allows you to withdraw from your card up to a certain percentage of your credit limit. This is considered as a regular transaction using your card and is chargeable.
Banks allow you to transfer the credit card balance from one bank to another. This means if you have incurred a huge bill on your card, you could transfer the balance to another bank which charges a lower interest rate. However, there is no grace period on balance transfers.
It gives a time period to the customers to collect the necessary money to pay back.
Payment made after the grace period elapses will not only increase the amount of money you are paying back, but could also ruin your credit score. Maintaining a good credit score will come handy in the future when you want to apply for a line of credit. Personal loans are easily approved when your credit score is good. Those who think they can afford the late payment and interest rate should pay attention to this factor.
Most credit card companies require you to pay a minimum amount every month. This is usually 3% to 5% of the outstanding amount or S$50, whichever is higher. The common mistake is to pay only that much. When you are paying only the minimum, you are keeping the debt pool active. You end up paying for a longer tenor, ergo paying more money than you borrowed. Grace period will not be applicable to cardholders who only pay the minimum due month-on-month.
There cannot be enough stress on this one. Preparing a monthly and even a yearly budget can be very effective in curbing your spending. It is important to separate your needs from your wants. The most common areas where you can save is on shopping and entertainment. If you are a compulsive shopper, it is very vital to control your urge to shop every time you come across a pretty dress. This will make your outstanding balance more affordable to pay off entirely, and thereby, keeping your grace period valid on your future transactions.
Choosing credit cards according to your needs is crucial to benefit from them. If you are not much of a traveller, taking a card giving more air miles is not going to benefit you much, just because it has great welcome offers. Sit down and thoroughly calculate the fees and other charges that your card will incur. Read the terms and conditions on the bank’s website carefully. Singaporeans using multiple cards should pay attention to this.
Every time you use your card, you are attracting debt. If you do not pay it back every month before the due date, you are losing money unnecessarily. If you keep doing that, going back to the bigger picture, you end up spending a huge percentage of interest rates.
Additionally, be wary of using expensive services on your card like taking out a cash advance.
You could save a few dollars here and there by simply remembering to pay your bills on time, including utility bills apart from credit card bills. There are apps to keep a track of your spending. Make use of that.
You could successfully avoid paying interest on your payments if you make a few cutbacks and plan wisely.