credit card

In today's world, using the plastic to pay for purchases is the norm. And just what does this 'credit' card do? Simply put, the credit card company is paying on our instruction to the seller and thus, the buyer (us) the consumer will be indebted to the card company. Akin to borrowing money to pay for something first.

When the credit card bill comes, we (consumer) has n number of days of 'free' period to repay this debt, after which an interest fee will be charged on the remaining balance. If the consumer has a habit of just paying the minimum sum and rolling over the balance, the final sum owed will now likely be more than the original sum owed. For example, if the sum owed is $1K, and the user just makes the min. payment of $50 per month and assuming interest rate of 24%, it will likely take 4 years and 7 months just to pay off this amount plus the user would've to pay an interest of about $470 extra! That is like almost 50% extra from original sum owed! There are free online calculators to help estimate/gauge the time taken to pay-off the credit card debt, or to estimate how long it'll take to be debt free assuming no further spending. Click here for one example of such tool.

As illustrated with just a small sum owed, imagine if the sum owed is now $5K, $10K or more. This scenario is extremely possible as one user may or usually has more than 1 card. And if 1 card allows you to draw up to 2 times salary (if salary is $2.5K, each card can net you $5K, and with 3 cards the user may end up with $15K debt if all cards are maxed out). Using $10K and min. payment of $300, the user will now have to pay for 25 years and the interest chalked up, is more than the original sum owed ($17K in interest alone)! Wow! Hence, not surprisingly, some of us may fall deeper and deeper into debts due to failure in managing the debt in the first place. It's a scary spiral downwards!

Here's a recent report on the debt that card users in Singapore have chalked up. Quote from the report "A mind boggling $3.68 billion debt.."

What to do, when we find we can no longer cope with the repayment (hopefully one will seek help even before this stage!)? There's Credit Counselling Singapore to help.

For most problems, systematic actions need to be taken in order to achieve a different outcome. Hence, if on our own we may not be as resourceful or resillient to know what to do, so it will be important to speak to the experts who are on hand to assist. The first step to be taken, is to acknowledge and be aware that this is not the end of the world and there are things that can be done to make the situation better.