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4 steps to take control of your finances

15 Jan 2021

Just think: All that money spent paying interest on past purchases could be money invested for your future. Here are four steps to take control of your finances and get out of unhealthy debt for good.

1. Pay down debts with a highest interest rate

Consider paying down debts with the highest interest rate first because it costs more to carry a balance on a high-interest rate debt. Credit cards typically charge higher rates than other types of debt, it often makes sense to focus on reducing card debt before paying off other loans, such as a mortgage or car loan.

Credit card monthly finance charge is based on your interest rate and the balance, therefore the higher interest rate, the higher the finance change will be. The longer you take to pay off the balance, the more money it costs you.

2. Pay more than the minimum on credit cards

Assume your credit card account has an outstanding balance of HK$20,000 without further transaction, annual fee and other fees but carries an annualized percentage rate of 35% (Monthly interest rate around 2.53%). Let’s look at the interest paid in two different repayment scenarios:

Naturally, the faster you can pay off, the less the debt will cost you, therefore please consider paying more than just minimum payment. 

3. Look for lower interest rates

It's difficult to dig out of debt when interest keeps piling up. To make sure that more of your payments go to paying down the principal, shop around for low-interest balance transfer offers or loans to repay credit card debt. You may even find a 0% balance transfer loan. But beware as there’s typically a fee for transferring a balance. Paying the fee and getting a lower interest rate can sometimes be worth it, especially since paying down the entire balance is going to take time.

4. Avoid using a credit card to finance purchases

Using a credit card to shop is very easy, however it may also double your purchasing cost. Say you buy a $10,000 TV on a credit card with a 35% interest rate. If you make only the minimum monthly payment1, it would take you more than five years to pay off the original debt. You need to pay HK$10,582 for interest —essentially doubling the cost of the TV.

Consider hiding your credit cards or just leaving it at home to reduce purchasing things by credit card.

1  Assuming the minimum payment amount is HKD300 or the sum of items (i) to (iv) below whichever is higher: (i) all fees and charges; (ii) any overdue Minimum Payment Amount; (iii) amount exceeding the prescribed credit limit after deducting the amount of items (i) and (ii) from the New Balance; and (iv) 1% of the New Balance after deducting the amount of items (i) to (iii).


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