Beware the Debt Trap: The Risks of Credit Card Borrowing

Credit Card Interest Rates Skyrocket

In the final months of the year, state-owned banks such as Vietcombank, BIDV, and VietinBank have announced significant increases in credit card interest rates. At Vietcombank, rates for various card tiers have risen from 15-18% per year to 18-22% per year, marking an increase of 3% to 4.5% annually depending on the card type. Similarly, BIDV and VietinBank have raised rates for several card categories to 22% per year.

Private commercial banks like OCB and Techcombank have also adjusted their credit card interest rates sharply over the past two months. OCB now offers a maximum credit card interest rate of 37% per year, while Techcombank’s highest rate reaches 38.8% per year. Earlier, VPBank revised its credit card interest rates, with the highest rate set at 3.99% per month, equivalent to nearly 48% per year.

These steep interest rate hikes coincide with the peak spending season at year-end, when demand for credit cards and consumer loans typically rises. Notably, these high rates only apply if cardholders fail to pay their full balance on time or withdraw cash using their credit cards. Most banks waive interest charges if the full amount is settled before the statement date, regardless of the listed interest rates.

However, in Vietnam, many individuals, particularly young customers, often fall into a cycle of “swiping, paying the minimum, and accumulating debt,” especially when managing multiple cards simultaneously, due to enticing sales, promotions, and installment plans.

Risk Alert

Speaking with Tiền Phong, Mr. Nguyễn Quang Huy, a banking and finance expert from Nguyễn Trãi University, explained that amid rising market interest rates, banks are adjusting lending rates, with credit card rates increasing the most due to their unsecured nature and higher risk.

As banks face higher funding costs and shrinking net interest margins, they raise credit card rates to offset risks. Additionally, consumer loan defaults, especially for credit cards, are showing signs of increase. This environment makes it easier for users to fall into a “debt trap” without adequate financial knowledge.

Mr. Huy emphasized the importance of understanding credit card interest calculations: Full payment by the due date grants an interest-free period. However, partial or minimum payments result in interest charges on all transactions from the first day of the billing cycle. Many users mistakenly believe the minimum payment is safe, unaware it leads to revolving debt, where interest compounds daily and grows rapidly. With already high credit card rates, prolonged debt can cause repayments to far exceed the original spending.

“Debt traps arise when users lack financial literacy, face spending pressures, or overly trust card promotions. Many campaigns highlight cashback, gifts, or annual fee waivers, making card acquisition and unconscious spending easier. Without carefully reading terms, users may overlook critical details like interest-free periods, interest calculations, cash advance fees, late payment penalties, and conditions for losing benefits,” Mr. Huy noted.

He advised cardholders to ask bank representatives to clarify interest-free mechanisms, actual interest rates, hidden fees, minimum payment rules, and consequences of incomplete payments. They should also assess their repayment capacity before accepting credit limits to avoid overspending.

During card usage, users should prioritize full statement payments to maintain interest-free status. If unable to pay in full, they should pay as much as possible and avoid consecutive minimum payments. Cash withdrawals and cash advances, the costliest transactions, should be avoided. Regularly monitoring statements, controlling recurring small expenses, and reviewing unusual transactions are essential.

“Users should watch for warning signs: consistent minimum payments, using one card to pay another, increased cash withdrawals, payment stress, and monthly spending exceeding 30-40% of the credit limit.

Upon noticing these signs, immediately review your budget, reduce spending, halt new card applications, or consider debt consolidation at lower rates. Credit cards are not inherently risky, but misuse due to lack of knowledge is the greatest risk,” Mr. Huy concluded.