Credit Card Minimum Payments: Are They A Trap?

Open a credit card statement and you’ll see a couple of important figures. Foremost of these is the outstanding balance, but there's also the minimum payment amount listed. 

The minimum payment amount is often a much smaller number compared to the full balance, and you may be tempted to think that paying your bill in full is optional. 

Technically, that is true – you can choose to pay just part of your credit card bill, as inadvisable as that is. 

But even if you choose to defer fully paying off your credit card bill, there’s a limit to how little you can pay. This is known as the credit card minimum payment amount, and understanding what it is and how it works is essential for ensuring responsible credit card use.

Credit card minimum payments are offered as an alternative to paying your bill in full. 

This feature can be helpful when encountering temporary cash flow issues, allowing you to maintain your cardholder privileges in exchange for a small upfront payment, and interest charges on the sum you owe (to be paid the following month). 

Also, if paid on time, the minimum payment will also help you to stave off the late payment fee (approximately S$100, at the time of writing) for that month. 

But because of the interest that is charged on overdue credit card balances, there’s only so far you can go making partial payments before your debt starts to look more than a little worrisome. This is exacerbated if you’re only paying the minimum payment every month.

Note that you don’t have to stick with the minimum payment, you can pay a higher amount if you’re able to. 

One thing to note is that credit card minimum payments impact your Total Debt Servicing Ratio (TDSR), which affects how much you can borrow when applying for a mortgage or a car loan. Here’s how.

When you have an outstanding balance on your credit card, the minimum payment amount is blocked out from your TDSR, which is set at 55% of your monthly income. This means that your TDSR will be lowered by at least S$50 per credit card with a balance, and this goes up as your overdue amount increases. 

Thus, having too many credit cards with outstanding balances, or maintaining a high balance that results in high minimum payments each month can derail your plans to purchase a home or a vehicle. 

One more reason you shouldn’t treat credit card minimum payments as licence to spend recklessly. 

Generally, the minimum credit payment in Singapore is 3% of the outstanding amount, or S$50, whichever is higher. You will also have to pay any overdue amounts, penalties and sums exceeding your credit limit. 

Different banks have different ways of calculating the minimum amount, but you can find the exact formula in the Cardholder’s Agreement or Fees and Charges schedule.

As a quick reference, we’ve compiled the credit card minimum payments for different banks in the table below. But do be aware that minimum payments are subject to change, so always be sure to refer to your credit card statement when in doubt. 

Bank/card issuer	Credit card minimum payment
American Express	3% of outstanding amount, plus total sum of any overdue minimum payment and late payment charges, and any amount exceeding your credit limit, or S$50 – whichever is greater
CIMB	CIMB Visa Infinite/Signature and CIMB World/Platinum Mastercard cards: Higher of 3% of outstanding balance or S$50, plus outstanding overdue amount from previous statement AWSM card: Higher of 3% of outstanding balance or S$15, plus outstanding overdue amount from previous statement
Citi	1% of current balance + 1% of any outstanding unbilled instalment amounts + all interest charges + all upfront service fees + late payment charges, or S$50, whichever is higher
DBS/POSB	3% of the statement balance (or S$50, whichever is greater) plus any amount that is overdue and/or exceeds your credit limit
Maybank	3% of outstanding balance or S$20, whichever is higher, plus any outstanding amount "Past Due" from previous statements For accounts over limit: 3% of the credit limit plus the excess over the credit limit
OCBC	S$50 or 3% of the Total Balance, whichever is higher, and any overdue amount. For accounts over limit: 3% of the Total Balance plus the amount in excess of the Credit Limit and any overdue amount
Standard Chartered	The greater of either S$50 or 1% of principal (including any instalments billed in current month) plus interest, fees and charges; plus overlimit amount and past due amount (if any)
UOB	3% of outstanding balance or S$50, whichever is higher, plus any overdue amounts For accounts over limit: 3% of Credit Limit, plus excess over Credit Limit, plus any overdue amounts

It’s important to understand that when you roll over a balance on your credit card, the amount is split into two components – the sum you owe, and the interest charges on it. 

The payment you make to your credit card balance goes to the interest charges first, any amount left over is then used to reduce the amount owed. 

The amount still outstanding after this is then charged another round of interest on the next billing cycle. 

Now, credit cards charge around 28% per annum in interest charges, compounded daily. This works out to roughly 2% to 2.3% in interest each month. 

With a minimum payment of 3%, you are barely making a dent in your debt – especially so when the interest for the month is paid off first, leaving even less to pay towards your outstanding balance. 

Here’s a quick illustration. All numbers have been rounded up for simplicity.

Month 1

• Balance: S$5,000

• Interest charge: S$115 (2.3% of S$5,000)

• Minimum payment: S$150 (3% of S$5,000)

• Balance outstanding = S$4,965 (S$5,000 + S$115 - S$150)

Month 2

• Balance: S$4,965

• Interest charge: S$114.2 (2.3% of S$4,965)

• Minimum payment: S$148.95 (3% of S$4,965)

• Balance outstanding = S$4,930.25 (S$4,965 + S$114.2 - S$148.95)

After two months paying the minimum amount to your credit card account, you’d have spent nearly S$300. Yet, your outstanding balance would have been reduced by only S$60!

And this is assuming that you stop adding to your debt by ceasing further use of your credit card. 

Clearly, paying just the minimum amount on your credit card is not a good idea. You’ll barely make any progress towards paying off your balance, while continuing to pay interest charges every month.

Let’s not forget that some card issuers impose a higher interest rate should you carry over your balance for more than two or three months in a row. This only further exacerbates your debt. 

Credit card minimum payments may be comparatively low, but this isn’t exactly a good thing. And while helpful in a pinch, you should certainly not take paying the minimum amount as a long-term solution. 

Even if you can’t quite pay the entire balance, strive to pay more than just the minimum. This way, you will be able to start chipping away larger and larger chunks of your credit card balance as you go along. 

Also, consider converting your debt by taking a personal loan to pay off your credit card balance, then paying off your loan with fixed instalment payments. Personal loans have lower interest rates than credit cards, which make them easier to pay off.

More importantly, a personal loan helps you stop the cycle of interest charges being added to your account each month, stabilising your debt and allowing you to finally catch up.