Minimum Payment Guide: A Must-Read for Credit Card Beginners

Basic Concepts of Credit Cards

As a modern financial tool, credit cards have become an indispensable part of many people’s daily lives. They not only provide a convenient payment method, but also help build credit history and offer various perks and rewards. However, using a credit card also comes with certain risks and costs, so understanding its basic concepts is an essential lesson for every cardholder.

1.1 Functions, Advantages, and Disadvantages of Credit Cards

Main functions of credit cards include:

• Spend now, pay later: Allows cardholders to make purchases within their credit limit and pay by the due date.
• Worldwide acceptance: Most credit cards can be used internationally, making them convenient for travel or overseas shopping.
• Build credit: Timely repayment helps establish a good credit history, which is beneficial for future loan applications.
• Perks and rewards: Many credit cards offer cashback, mileage accumulation, or merchant discounts.

However, credit cards also have drawbacks:

• High interest rates: If you don’t pay the full amount, costly revolving interest will be charged (average annual interest rate in Hong Kong is about 35%).
• Overspending: May encourage impulse buying, leading to debt accumulation.
• Annual and transaction fees: Some credit cards charge annual fees, and foreign transactions may incur extra charges.

1.2 Explanation of Credit Terms

Detailed Guide to the Minimum Payment

2.1 How the Minimum Payment is Calculated

The calculation of min pay usually includes:

• 1%-5% of new spending for the current period
• 1%-5% of any previous unpaid balance
• Any late fees or penalties
• A minimum fixed amount set by the bank (e.g., HKD50)

Example: If you have HKD10,000 in new spending and HKD5,000 in unpaid balance from the previous period, the min pay may be: (10,000 × 3%) + (5,000 × 3%) = HKD450 (assuming a 3% rate).

2.2 Impact of Paying Only the Minimum Payment

Although paying the min pay can avoid late payment records, it has the following downsides:

• High interest charges: The remaining balance will accrue daily interest, which can double the debt over time.
• Negative impact on credit score: Frequent min pay payments may be seen as a sign of poor financial health.
• Debt trap: Easy to fall into a cycle of “paying interest but not the principal.”

According to the Hong Kong Consumer Council, about 23% of cardholders regularly pay only the min pay, and 15% of them eventually face serious debt problems.

2.3 How to Check Your Minimum Payment

• Clearly shown on your monthly e-statement or paper statement
• In the “Bill Summary” section of your bank’s mobile app
• In the credit card section of your online banking system
• By calling your bank’s customer service hotline

Understanding Your Credit Card Statement

3.1 Key Information in a Statement

You should carefully review the following in your credit card statement:

• Total amount due and min pay
• Date, merchant, and amount of each transaction
• Payment due date (usually 20-25 days after statement date)
• Available credit limit and current balance
• Any new fees or interest calculations

3.2 How to Avoid Revolving Interest

• Pay the full statement balance — the most effective way to avoid interest
• Set up auto-pay — ensures at least the min pay is covered to avoid late payments
• Repay high-interest debts first if you have multiple cards
• Make payments as soon as possible after spending to reduce interest days

3.3 What to Do About Unusual Transactions

• Contact your bank immediately to freeze the card
• Submit a written dispute form
• Cooperate with the bank’s investigation (often requires a police report)
• Check your credit report regularly to confirm no other irregularities

According to the Hong Kong Monetary Authority, in 2022 the average handling time for credit card fraud cases was 14 working days.

Using Your Credit Card Responsibly

4.1 Spend Within Your Means

• Limit credit card spending to no more than 30% of your monthly income
• Distinguish between “needs” and “wants”
• Set spending alerts or limits
• Review spending habits regularly and cut unnecessary expenses

4.2 Pay on Time to Maintain Good Credit

• Set repayment reminders (e.g., phone calendar)
• Pay at least the min pay to avoid damaging your credit
• Ideally, pay in full to save on interest
• Consider debt consolidation to lower overall interest

4.3 Take Advantage of Credit Card Promotions

• Compare cashback rates (commonly 0.5%-4% in Hong Kong)
• Look out for limited-time discounts (e.g., extra 5% off at supermarkets on weekends)
• Join reward programs (e.g., airline miles)
• Read the terms carefully (minimum spending, exclusions, etc.)

Frequently Asked Credit Card Questions

5.1 How to Apply for a Credit Card

Basic requirements in Hong Kong:

• Must be at least 18 years old
• Have a stable income (usually a minimum monthly salary of HKD8,000)
• Provide proof of address and a copy of your ID
• Some premium cards require a much higher income (e.g., HKD50,000/month)

5.2 How to Cancel a Credit Card

• Ensure no outstanding balance or unredeemed points
• Call customer service to request cancellation
• Cut up the physical card to prevent misuse
• Request a written confirmation letter and keep it for 6 months

5.3 What to Do if Your Credit Card is Lost or Stolen

• Call your bank’s 24-hour hotline immediately
• Freeze the card via mobile app (if available)
• File a police report (especially for large fraudulent amounts)
• Monitor subsequent statements to confirm no unauthorized transactions

According to the Hong Kong Association of Banks, most fraudulent losses within 48 hours after reporting the loss are covered by banks.

financial

2