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Payment holiday for credit card is not worth taking
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| MARCEL LEE PEREIRA |
Tue, May 20, 2008
my paper
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>IF YOU hold a credit card, chances are you might have been urged to take a "payment holiday" at some point.
That means you can miss your minimum payment for a month, usually during festive seasons like Christmas and the upcoming Great Singapore Sale.
Late charges are waived that month, and your credit card statement might show you have zero minimum payment due.
It sounds like a good deal, but this is a holiday which may not be worth taking, warn financial experts my paper spoke to.
This is because interest charges - usually 24 per cent per annum - still apply to the outstanding balance, and it could lead to a habit of rolling over credit card debt, they said.
Banks, however, say this is a good way for their customers to manage their finances, and at least four major banks here - DBS Bank, United Overseas Bank (UOB), OCBC Bank and Standard Chartered Bank - offer such breaks.
UOB and OCBC both started offering them last year. The other two have been doing so for a while now.
Last December, credit card rollover debt - the amount users defer payment on - crossed $3 billion here for the first time.
CIMB-GK economist Song Seng Wun cautioned: "The habit tends to be to build up debt in small amounts and let the outstanding balances grow, without realising the interest payments will start to balloon. The bottom line is, try not to owe credit card companies any money."
Said Credit Counselling Singapore's assistant director Tan Huey Min: "Remember that the bank is a profit-making institution and hence, whenever it offers a new feature, for example a payment holiday, there is generally a cost that the consumer would have to pay for."
President of the Society of Financial Service Professionals Leong Sze Hian added: "When you call it a payment holiday, it is a true holiday only if during that month you don't even charge interest."
But banks strongly defended their offers. Calling them an "innovative feature", a UOB spokesperson said they allow cardholders to "better manage their finances".
Its cardholders find it useful from time to time, and the take-up varies according to their needs, the spokesperson said.
OCBC's payment holidays are offered by invitation only to loyal cardmembers who actively use its cards, said the bank's head of group unsecured lending and credit cards, Ms Lynn Gaspar.
She added: "We offer them from time to time, and typically after key festive seasons. Response has been good with cardmembers giving feedback that payment holidays help them with cash-flow management."
Ms Gaspar added, however, that this is "not an encouragement" to spend beyond one's means. "Rather, it is a tool for shoppers to cope with any extra spending they may have incurred."
Standard Chartered's head of credit cards, Mr Kartik Taneja, said payment holidays are usually offered to a select number of its 300,000 cardholders during key spending seasons such as the Great Singapore Sale on the basis of their risk profile and relationship.
When contacted, other banks such as Maybank, Citibank, and HSBC said they do not offer such payment breaks.
Credit Counselling Singapore's Ms Tan, however, acknowledged that such offers could be useful if one was faced with an unplanned and temporary cashflow issue.
marcelp@sph.com.sg
For more my paper stories click here.
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