Credit card is a form of borrowing and allows you to buy goods and services on credit. It is very convenient because it allows you to pay without using cash upfront.
However, it is not meant to be a long-term credit facility. Because any outstanding balance will incur interest charges (about 25% per year) if you do not pay back in full by the payment due date.
What happens if you can’t pay off your credit card in full?
You will lose your entitlement to interest-free credit for your current purchases and all subsequent purchases.
If you cannot pay off your credit card in full, you should at least pay the minimum sum and rollover the balance to the next month. However this is not a good option.
As shown below, a debt of $5,000 could take more than 14 years to pay off if you only pay the minimum sum each month.
What happens if you cannot pay the minimum sum?
- The bank can impose a late fee and finance charges.
- Your credit scores with the credit bureaus will suffer. Non-repayments or overdue repayments of credit card bills will be reflected in your credit report, and could adversely affect you when you apply for a new loan.
- You won’t be able to obtain new unsecured credit facilities.
Conclusion
The longer you take to pay off your credit cards, the more interest you will incur. To enjoy the use of interest-free credit for your purchases, it is advisable to pay off your credit cards promptly and in full.
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