Hidden credit card costs in Singapore

[SINGAPORE] You might not always have enough cash on hand, but swiping your credit card can give you the flexibility to afford bigger purchases with ease. Beyond convenience, credit cards can help you build a solid credit history—provided they're used responsibly.

But don’t let the ease of tapping your card fool you. Once fees and interest charges are factored in, the real cost of using credit can add up quickly. Here’s a breakdown of common credit card costs every consumer should be aware of:

1. The Hidden Cost of Paying Only the Minimum

Paying just the minimum due each month might seem manageable, but it can be a costly habit. For one, it significantly prolongs the time it takes to clear your debt. On top of that, interest continues to accrue on the outstanding balance, often faster than you're reducing it.

For instance, let’s say you carry a balance of S$5,000 with an annual interest rate of 24%. If you only pay the minimum—typically 3% of the balance or S$50, whichever is higher—it could take you over 20 years to clear the debt. During this period, the total interest paid could exceed S$10,000. This stark example underscores the importance of paying more than the minimum whenever you can to cut down the total cost of borrowing.

2. Late Payment Fees Add Up Fast

Missing your payment deadline? That could set you back by S$60 to S$80 in late fees, depending on your bank. On top of that, your interest rate may spike, and you could lose out on any earned rewards.

Late payments don't just hurt your wallet—they can dent your credit score too. Credit bureaus closely monitor payment history, and repeated delays can drag your credit rating down, making future borrowing harder and more expensive. Some banks may even reduce your credit limit or raise your interest rate further. Setting up reminders or enabling auto-pay can go a long way in avoiding these pitfalls.

3. Cash Advances Come at a Steep Price

Need cash in a pinch? You can use your credit card for a cash advance, but be warned—it’s one of the costliest ways to access funds. Transaction fees typically hover around 6% or S$15 per withdrawal, whichever is higher.

What’s more, interest—often around 28% to 30% per annum—starts accruing immediately with no grace period. Some banks even charge higher rates for cash advances compared to regular purchases. Unless absolutely necessary, it's wiser to explore alternatives like personal loans or overdraft facilities, which tend to offer better terms.

4. Foreign Transactions and Hidden Charges

With more consumers shopping online from international retailers, overseas transaction fees are becoming increasingly common. Two charges often apply: the foreign transaction fee and dynamic currency conversion (DCC) fee.

The foreign transaction fee usually ranges from 1.5% to 3% of the transaction amount. Meanwhile, if a merchant offers to convert your purchase into your home currency, DCC charges may apply—often with a markup of 2% to 3%. These fees can add up, so consider using a credit card that offers zero foreign transaction fees when making purchases abroad or online.

5. Annual Fees: Are They Worth It?

Some credit cards charge annual fees that can run over S$100, though you might be able to get them waived by contacting your bank. It’s a quick call that could save you a good chunk of change.

Premium cards often justify these fees with perks like travel insurance, lounge access, and enhanced rewards. But if you don’t frequently use these benefits, a no-annual-fee card might be the smarter choice. Also, be mindful that the ease of using credit cards can lead to overspending. Studies have shown that people tend to spend more when paying with plastic than with cash—so keep your budget in check.

Stay Informed, Spend Wisely

Always review your credit card statements and stay updated on your bank’s terms. Fees and interest rates can change, and being informed helps you make better financial decisions. If something doesn’t add up on your bill, don’t hesitate to contact your bank to resolve it promptly.

In the end, credit cards are a powerful financial tool—if you understand how to use them wisely.