A credit card can sometimes be a blessing or a curse, depending on your spending habits. It is very useful when you don’t have enough cash on you, which is often the case as most people tend to carry less cash now due to the high crime rate. The many interest free installment schemes the credit card companies offer is also useful in helping you afford something expensive through small monthly repayments.
However, many don’t really use it well and end up putting huge sums on their credit cards or maxing out their credit limit by unrestrained shopping. I was also surprised to know that many don’t even fully pay off their cards every month and just pay the minimum credit card balance without realising that the interest charges of 18% per annum on the unpaid balance is much higher than the bank interest rates!
Recently, the Government introduced a tiered interest system for credit card holders, effective 1 June 2008, in a move to encourage wiser credit card usage. A summary is provided below.
- 20-day Interest Free Period – This used to be automatically available for all. However, it is now only available to credit card users who pay in full before or on the payment due date.
Previously, a flat 18% interest rate p.a. applied to all credit card users for any unpaid balances. However, under the tiered interest rate system, under this new tiered system, credit card users who regularly prompt payments are rewarded with lower interest rates, depending on their credit history and rating.
- 15% interest per annum – Applicable for credit card users who made prompt payments for 12 consecutive months.
- 17% interest per annum – Applicable for card users who made 10 to 11 prompt payments in the past 12 months.
- 18% interest per annum – Applicable for card users who made less than 9 prompt payments in the last 12 months.
The best way to avoid these high interest payments are, of course, to pay off your credit card balance in full every month. Inculcating the habit of paying off your credit card balance in full will help you keep your shopping in check as you will be careful not to spend more than what you can afford to pay when the statement arrives. This will inevitably lead to more savings in the long run!