BANDAR SERI BEGAWAN

IF YOU pay only the minimum of your credit card bills every month, you may have to take a second look at this habit before it leads into a state of credit card debt.

Javed Ahmad, acting managing director of Bank Islam Brunei Darussalam (BIBD), advises against paying the minimum charge of two or three per cent as it would lead to customers being in debt their whole life.

Javed explains how it works if you look only at your statement’s Minimum Payment column. If an item was purchased for $100 with no prior credit card debt and being the first item purchased, the bill at the end of the month comes to $100. “If I don’t pay the full and instead, paid the minimum, assuming it is $2, there will be a two per cent interest on my remaining balance. For my entire life, I will never settle that debt, which is terrifying and frightening. Is it healthy to pay the bare minimum for the rest of your life? I’m sure it’s not,” Javed explains.

In an effort to counter the situation, Brunei’s Ministry of Finance has issued a directive saying customers have to repay a five per cent minimum payment starting March. This will increase to eight per cent in June.

Javed advises anyone in credit debt to use resources provided by banks to come up with a solution on how to get out of this as opposed to defaulting on debt or ignoring the problem.

“If you pay five per cent of the said $100, that will be a commitment of four to five years. Don’t pay two to three per cent, it will take forever. If you keep racking it up by continuously paying the minimum, you will never come out of debt,” he says, adding that customers should also “curtail spending”.

Tii Eng Hui, deputy general manager of Baiduri Bank, likewise says the bank has a process called the Financial Health Check which is provided free to clients.

“This was launched two years ago and customers do always take this up,” he says. “We advise them how to manage their wealth and communication is key here. If the bank communicates a lot with customers, it will help them and the last thing we want to see is a customer defaulting.”

Tii explains there are three types of credit card users. There are the transactors they earn points and use it for convenience sake but always repay in full. The occasional revolvers they usually pay in full except for certain times. And there’s the frequent revolver who always pays the bare minimum; they are the ones to watch out for.

Tii says Baiduri also offers money management tips in cooperation with Visa.

Financial experts on MasterCard’s website also provide detailed information on tackling debt.

“Curb your spending, freeze unnecessary spending while you assess the current problem and make plans to eliminate debt. Cutting spending can come in many forms. It may mean passing on buying big items, or it may mean bringing lunch to work or school rather than eating out every day,” their website says.

It also advises customers to pay their most expensive debt first, because interest can add up quickly on debts of any size, so, be sure to focus on paying off the ones with the highest rates.

Customers should also understand interest and late fees.

“Know your interest rates and what the late fees are on all of your debts. Avoid late fees to ensure they’re not adding to your debt, and explore options for lower interest rates. If you can’t make a payment, call the banks or companies you owe and talk to them about your situation,” the site says.

MasterCard also reminded customers to be patient, it takes time to get into debt, so remember that it won’t be cleared over night.

They key is to stay motivated and remember that debt elimination will change the outlook on life.The Brunei Times

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