The True Cost of Credit-Card Interest

A credit card is a brilliant way to pay and a brutal way to borrow. The trap is the gap between the two.

Used as a payment tool — spend, then clear the bill in full each month — a credit card is genuinely useful: convenient, often rewarding, and interest-free within the billing cycle. The danger begins the moment a balance is carried, because the borrowing rate is among the highest you will meet in ordinary life.

In Singapore, card interest typically runs around 26% per annum (as at June 2026; check your own card), charged on a daily basis so it compounds quickly. Worse, the "minimum payment" most cards allow is designed to keep you in debt: pay only that, and the bulk of your payment goes to interest while the balance barely moves. A few thousand dollars left to revolve can take years to clear and cost far more in interest than the original purchases.

The maths is simply unforgiving. At 26%, a debt left untouched grows by roughly a quarter every year — a pace almost no investment can match. That is why a credit-card balance is the first thing to clear, ahead of investing and ahead of most other debts: paying it off is a guaranteed, tax-free return equal to the interest you stop paying.

The rule is simple, even if the temptation is not: treat the card as cash you already have, and clear it in full, every month, without exception.

Illustrative example: paying the minimum vs paying it off

The chart tracks a credit-card balance two ways: making only the minimum payment, where the balance lingers for years, versus a fixed higher payment that clears it quickly. Same debt, same rate — the payment choice decides whether it costs you a little or a lot.