What Happens When You Can’t Pay Your Bill in Full?

Credit cards are great – right up until the time you receive your credit card statement(s) in the mail (or email if you receive e-statements). That’s when all of those purchases you made during the month come back to haunt you.

Anyone can run up a huge credit card balance – it doesn’t matter if you’re a shopaholic or a frugal spender who got retrenched or had out-of-pocket medical expenses to pay. The reality is that there are plenty of situations and emergencies that can run up your credit card balance!

But what happens when your credit card balance is too large to pay off in full? What happens if you can only pay the minimum or worse – can’t make payment at all?


How Will Paying the Minimum Affect Your Credit Card Repayments?

Ideally, you should be paying off your credit card balances every month for one major reason – to avoid the credit card interest rate on any outstanding balance you carry! That’s because the credit card annual interest rates are ridiculously high – ranging from 15% to 24%+ (varies by credit card).

Of course, if you’re carrying a large balance, you may not be able to pay it off in full. Sadly, too many people don’t make the effort to pay off their credit card balance(s) as fast as possible.

Instead some resort to making minimum payments – and that’s dangerous for two reasons:

#1 It’ll Take Years to Pay off Your Balance and Cost You Thousands in Interest!

When you pay only 3% of your outstanding balance or $50 (whichever is higher), it’s not a lot of money right?

But in time, the amount you’ll have to pay back IF you don’t make any further purchases with the card and make minimum payments will be more than you realise.

For example:

Let’s say you’ve run up a balance of $5,000 on your credit card.

The credit card has an annual interest rate of 24%

The minimum payment you’ll need to make on that credit card is 3% of the $5,000 balance or $50 (whichever is higher).

Since 3% of $5,000 is higher than $50, that comes to $150 for your first repayment (keep in mind your minimum payment will decrease slightly every month as you pay down your balance).

Now, how long do you think it’ll take you to pay off your credit card IF you don’t add to the balance and pay $150 (keep in mind you’re paying above the minimum payment required as the balance shrinks) every month until your card’s balance is paid off?

Here’s the answer:

It’ll take 56 months (almost 5 years!) to pay off the credit card – and the interest? That 24% annual interest rate will cost you $3,324 over the course of repayment, meaning that your $5,000 credit card balance really cost $8,324 to pay back!

 BUT WAIT… it gets worse.

Let’s assume that you don’t pay $150 every month.  Instead, you want to really pay the absolute minimum until your credit card balance is paid off. How long (and costly) would it be?

Here’s the answer:

It’ll take 165 months (almost 14 years!) to pay off the credit card – and the interest? That 24% annual interest rate will cost you $7,774 over the course of repayment, meaning that your $5,000 credit card balance really cost $12,774 to pay back!

Now think about this – if you paid $500 per month instead of the minimum, you would have paid off your credit card balance in 12 months (1 year) and the amount of interest you would have had to pay would have  been $635.16, meaning your $5,000 credit card balance would only cost you $5,635.16 to pay back!

 *Note: all calculations were rounded up to the nearest dollar and are for demonstration purposes only. 

#2 Because Paying the Minimum Makes it Easier for You to Go Over Your Credit Limit(s)

The average credit card in Singapore gives you 3X to 4X your monthly income – meaning you could potentially have spending limits of $12,000 on each credit card if you’re only making $3,000 a month!

Unfortunately, some credit card users see a $5,000 balance on their account and think, “bah, there’s no need to worry, I can make minimum payments since I still have another $6,000 of credit remaining”.

True, you might still have a lot of available credit in your account. But if you intend to continue using your credit card while making minimum payments – you’re taking a dangerous step towards going over your credit limit AND accumulating a massive amount of credit card debt (especially if you’re handling multiple credit cards this way).


For example:

Let’s say you do have a $5,000 balance on a credit card that has a credit limit of $12,000.

You make a minimum payment of $150.

But the following month you spend another $1,000 and grow your balance to exactly $6,000.

You make a minimum payment of $180.

The following month you spend $2,000 and grow your balance to exactly $8,000.

You make a minimum payment of $240.

Now you see where I’m going with this?

Seriously, if you’re only making minimum payments WHILE you’re still using your credit card every month – you’ll go over your credit limit in a matter of months. So if you absolutely must make minimum payments on your credit card, DO NOT add to the balance!


What About if You Can’t Make Payment?

If your credit card balance(s) has ballooned to an amount that you’re just not able to handle, the last thing you should do is ignore your monthly payments.

Instead, you should be working with your creditor(s) to find a solution that benefits everyone. This might mean working with your creditor to come up with a payment plan that’ll reduce your repayments to a more manageable level – until you’re financially able to make larger repayments.

Yes, your credit score will suffer because you’ll be carrying a large balance(s) on your credit card(s), but the damage would be MUCH worse if missed a payment or defaulted on your credit card account(s).