Maximising your repayment dollars
Let’s say you have a S$5,000 debt on a credit card with an interest rate of 15% p.a. and you want to work out the most efficient way to pay down the debt.
The minimum monthly payment on your latest credit card statement is S$100 (the greater of S$20 or 2% of the closing balance) but you calculate how much you can save if you start putting money aside and paying S$250 off your card each month.
| Minimum monthly repayments | Higher monthly repayments | |
|---|---|---|
| Credit card debt | S$5,000 | S$5,000 |
| Interest rate | 15% p.a. | 15% p.a. |
| Monthly repayment amount | the greater of S$20 or 2% of the closing balance | S$250 |
| Total time to pay off debt | 24 years 5 months | 2 years |
| Total interest paid | S$7,245.78 | S$789.73 |
| Total amount saved | – | S$6,456.05 |
As you can see from the table, you can save a massive S$6,456.05 by making higher repayments and pay your debt off in two years. However, if you were to continue to only make the minimum required payment, it would take more than 24 years to get out of debt. This clearly demonstrates why you should always try to pay more than the minimum monthly payment if possible.
