[Ki Ha-young's Life Card] Preventing Card Payment Delays with 'Revolving'? ... It's a 17% Annual Service Fee

Average Revolving Interest Rate 17.3% in First Half of Year
Check Subscription Status and Contract Terms Needed

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. In response, Asia Economy delivers diverse stories related to cards?an inseparable part of our consumer life?through its weekly 'Cards in Daily Life' corner, covering everything from new card introductions and industry insider stories to guides for card beginners.

[Image source=Yonhap News]

#. "There is a service that ensures your credit is not affected even if you have overdue card payments. It costs nothing at all. Would you like to apply for this service?"

Mr. A recently received such a call from a card company and signed up for the service. It turned out to be a revolving payment (revolving credit) service. Revolving means paying only part of the card bill and carrying the rest over to the next month, with fees charged on the carried-over amount. Contrary to the explanation that "it costs nothing at all," the carried-over amount actually accrues interest at a high rate of 16.5%.

Recently, the financial authorities issued a consumer alert at the caution level due to an increase in complaints related to card revolving payments. Revolving payment means paying only part of the credit card bill, with the remainder carried over to the next month and interest charged on the carried-over amount.

For example, if your card bill is 1,000,000 KRW and you apply for revolving with a 10% rate, you only pay 100,000 KRW this month. The remaining 900,000 KRW is automatically carried over to the next payment date, and fees are charged on the carried-over amount. According to the Financial Supervisory Service, as of the end of June this year, the average interest rate applied by full-service card companies to revolving users was 17.3%.

Average Revolving Interest Rate 17.3%... Debt Increases if Not Cancelled

Revolving has a structure where the lower the contract payment ratio set by the consumer, the more card debt they will have to repay in the future. Not only the amount carried over from the first month of use but also part of the money spent each month continues to be carried over, causing the principal to increase continuously.

Assuming an average monthly card bill of 1,000,000 KRW, in the previous example, after another month passes, the credit card payment date will combine this month's usage of 1,000,000 KRW and the 900,000 KRW carried over from last month, totaling 1,900,000 KRW (plus fees on the 900,000 KRW). Since revolving is not cancelled, this month you will be charged 10% of 1,900,000 KRW, which is 190,000 KRW (plus fees on the 900,000 KRW), and the remaining 1,710,000 KRW will be carried over to the next month. Fees will also be charged on the carried-over 1,710,000 KRW.

Because of this, revolving never ends unless you pay off the remaining amount in full and cancel it. Especially for young adults just starting their careers, excessive use of revolving beyond their repayment ability can lead to credit delinquency. Revolving payments are also treated as overdue if the payment account balance is below the minimum payment ratio. If credit status worsens due to accumulated revolving or overdue payments, the credit limit may be reduced, and in the worst case, you may have to repay the entire revolving amount at once due to loss of contract benefits.

Increase Contract Payment Ratio, Preferably Prepay and Cancel

The financial authorities advise that if you must use revolving, it is best to use it only within the necessary scope and for a limited period. Since overdue card payments lower credit ratings, there may be times when using revolving to put out urgent fires is necessary. If you inevitably use revolving, you should frequently check your revolving balance and reduce it whenever repayment funds are available. Avoid using the card and increase the revolving contract payment ratio. If possible, prepay the remaining amount before it is automatically carried over and cancel revolving. This is the best way to escape the revolving cycle.

"I was enrolled in the service without applying," "I was informed it was an interest-free service." The Financial Supervisory Service analyzed 54 complaints related to revolving and found many such complaints. Since revolving is a high-interest loan service like cash advances and card loans, why not take this opportunity to check whether you are unknowingly enrolled in revolving and whether you fully understand the revolving contract?