[Gi Ha-yeong's Daily Card] Revolving Credit Over Card Payment Delinquency?… Rational Usage Tips

Revolving Credit Enables Flexible Fund Management and Delinquency Prevention
But It Is a Type of Loan Requiring Monthly Principal and Interest Repayment
Fee Rates Are Also High at About 5~24%
Full Repayment in a Short Period Is Recommended

[Asia Economy Reporter Ki Ha-young]Is there anyone these days without at least one credit card? In modern society, anyone can have a card if they want. Credit cards have brought unparalleled convenience to daily life. Now, wherever you go, you can easily see people paying with credit cards or smartphones. As demand has increased, cards with various benefits are being released almost daily. Accordingly, Asia Economy delivers various stories related to cards, which are inseparable from our consumer life, through the weekly 'Cards in Daily Life' corner, from introducing new cards to industry behind-the-scenes and guides for card beginners.

#. "Don't come down this Chuseok." Office worker Mr. A, due to concerns about the spread of the novel coronavirus infection (COVID-19), did not visit his hometown this Chuseok but sent his parents a premium Hanwoo beef gift set and a fruit gift set. To compensate for not being able to visit in person, he paid more attention to the gifts than usual. Although he was worried about next month's credit card usage amount due to unexpected overspending, he is also considering using the card company's revolving payment service in case he runs short of money.

Have you heard of the revolving payment service? When using a credit card, you might be tempted by the card company's advertisement phrase, "Apply for revolving payment without worrying about your account balance on the payment date." This usually happens when unexpected expenses are large and you worry about card payment delinquency.

The 'Partial Payment Amount Carryover Agreement (Revolving)' payment means that if you repay a certain percentage or amount of the lump-sum and short-term card loan (cash service) usage amount, the remaining usage amount is carried over to the next month, extending the repayment period, and you can continue to use the card within the remaining credit limit. At this time, a revolving fee is charged on the amount carried over to the next month. Simply put, 'revolving' means deferring part of the card payment due this month to the next month.

Revolving payment allows flexible fund management by varying the monthly repayment ratio according to your financial situation, and since the remaining payment amount is carried over, it can prevent delinquency in advance. For example, if your card bill is 1,000,000 KRW and you apply for revolving with a 10% ratio, you only need to pay 100,000 KRW this month. The remaining 900,000 KRW is automatically carried over to the next payment date, and a fee is charged on the carried-over amount.

Since card payment delinquency lowers your credit rating, sometimes it is necessary to put out the urgent fire through revolving. However, revolving is a kind of loan where you must repay principal and interest every month, and the fee rate is also high, about 5~24% (varies by card company and credit rating), so it is advisable to pay it off in a short period if possible.

Photo by Yonhap News

Revolving, automatic extension unless fully repaid and canceled

Revolving is scary in that it never ends unless you repay the remaining amount at once and cancel it. Not only the amount carried over from the first month of using revolving but also part of the money spent every month continues to be carried over, so the principal to be repaid keeps increasing.

For example, assuming the average monthly card bill is 1,000,000 KRW, on the credit card payment date one month later in the previous example, the amount used this month of 1,000,000 KRW and the 900,000 KRW carried over from last month are combined and billed as 1,900,000 KRW (+ fees on the 900,000 KRW). However, since revolving has not been canceled, only 10% of 1,900,000 KRW, which is 190,000 KRW (+ fees on the 900,000 KRW), is billed this month, and the remaining 1,710,000 KRW is carried over to the next month. A fee of 5~24% is added to the carried-over 1,710,000 KRW. The structure is such that revolving fees and principal to be repaid increase every month.

In the end, if you applied for the revolving service to avoid card delinquency, the only way to escape the revolving trap is to repay immediately and cancel it. You prepay the remaining amount before it is automatically carried over and cancel revolving. If the amount is too large to pay immediately, it is better not to use the card for the time being and gradually increase the revolving contract repayment ratio.

When issuing a new credit card, you may be advised to apply for revolving with a 100% ratio, saying that no fees are charged and it is similar to lump-sum payment, to prepare for possible insufficient balance on the payment date. However, if the actual payment account balance is insufficient, although it does not become delinquent, the unpaid payment amount is automatically carried over to the next month with revolving fees attached, even if you do not want it. Therefore, if you do not want revolving, it is better not to subscribe even with a 100% ratio condition.