If you have RM 10,000 balance on your credit card and decided not to keep charging any future expenses to that card while maintaining a minimum payment every month.
For a balance of RM 10,000, the minimum monthly payment is RM 500. Your next monthly is not RM 9,500 but RM 9,618.75. Where does this extra RM 118.75 comes from? It is the interest charged on the remaining balance.
A 15% per annum interest rate is charged on your card (minimum payment on time). 15% divide by 12 is 1.25% per month.
Now that 1.25% interest rate is charged to the remaining RM 9,500 which gives us the amount RM 118.75. Add this to RM 9,500 and you have RM 9,618.75. The following, your minimum payment is RM 480.94, and the remaining balance would be RM 9,137.81.
If you keep paying the minimum amount due to your remaining balance, you will finish paying after 8 years and 4 months and you would have paid RM 13,030- more than 30% from the original RM 10,000.
Keep in mind in example above, we are assuming no extra spending is charged to the remaining balances. If you take the actual scenario most credit card users are in, there is always additional charges every month. The numbers get big. Even an additional RM 500 monthly for 12 months will increase the total amount paid by another 3.33%. This means you pay extra 33.33% from the amount that is charged to your credit card.
Now, let us say that you pay 10% of the available balance, that is double the minimum payment. By doing this you will end up paying within 4 years and 3 months. Your total payment is RM 11, 252 or an extra 11.52 %.
If you have debt, it is better you try to pay at least double the minimum amount. If that is too much, try an extra 30%. This goes a long way in reducing interest payment.
