5 Logical Reasons to Stop Being Afraid of Credit Cards

Credit cards have a frightening reputation for causing debt. But you don't need to be afraid of them if you use your credit card responsibly.

Credit cards have a troubled reputation. We often hear (dramatised) stories about how someone went bankrupt with credit cards, or how credit card debt is “impossible” to repay. Yet hundreds of thousands of Singaporeans use them without financial detriment. In fact, many even manage to save money with them.

Here’s why you shouldn’t shy away from credit cards in Singapore:

• How to save money
• Dealing with credit card debt
• Reassurance against identity theft
• Customisable credit card limits
• Build credit score
• Conclusion

#1: Credit cards can save money

Credit cards come with reward points, cashback, discounts, air miles, and much more. When used as a mode of payment, these benefits allow you to pay less for what you buy. Credit cards also optimise your spending by giving you rewards or discounts with your purchases.

For example, the POSB Everyday Card gives 5% cash rebates at Sheng Siong (with no min. spend) and 10% cash rebates on online food delivery at foodpanda and Deliveroo (with min. S$800 spend per month). Here's how much you can save on groceries and food delivery with this credit card:

Using the right credit card for the right purpose can save you significant amounts over time. Feel free to use our SingSaver comparison tools to find the best credit cards to match your financial needs.

#2: Credit card debts are not “impossible” to repay

Most credit cards charge interest on outstanding retail purchases between 23.9% and 27.8%.

If you neglect your credit card bill, interest typically accrues daily with compounding until the overdue balance is settled. Should your credit card spending fall in the thousands per month, this amount can quickly snowball into a daunting debt, making full repayment increasingly challenging.

However, as long as you repay the money charged to your credit card, before the end of the billing cycle (about one month), there will be no interest to repay. After all, 27.8% of $0 is $0.

Once your credit card bill is settled, there should be no issue.

If you are unable to repay your card in full, there are many options to lower the interest rate. For example, you can make a balance transfer of your debt to another credit card—this will often give you a whole year, interest-free, to repay the debt.

You can also take out a personal loan at a much lower interest rate (from 2.68% p.a.), and use it to repay the credit card debt.

💡 Pro-tip: On the other hand, if you're dealing with debts from other personal loans (on top of credit cards!), you can utilise a debt consolidation plan to merge all your current debts into a single loan with a reduced interest rate!

Read more:
How to Pay Your Credit Card Bills: DBS/POSB, UOB, HSBC, and More
Credit Cards 101: How Does A Credit Card Work?
Credit Card Minimum Payments: Are They A Trap?
4 Ways You Are Accumulating Debt Without Knowing It

#3: Safeguards against identity theft

It takes only basic precautions to avoid identity theft. So long as you do not post your credit card information online, or give out its details too freely (e.g. reading out the card number and security code over the phone), your credit card will be well protected.

If someone else obtains your credit card and charges large amounts to it, you will receive alerts and notifications through your banking app.

More often than not, banks have phased out SMS and call notifications. Banking employees will never call to ask you to disclose your internet banking credentials or OTPs; neither will they send you unsolicited links to SMSes leading to a bank's website. 

Please exercise due caution as scam tactics have gotten more elaborate, devious, and convincing over the years.

Under Associated Banks of Singapore (ABS) guidelines, your maximum liability from identity theft is S$100 (provided you were not negligent).

#4: Set lower limits on your credit card

Most credit cards have a credit limit of two to four times your monthly income. If you feel you cannot control your spending, you can ask for a lower limit to be placed on the card. This will impede you from spending more than you earn.

This is also good for parents who allow their children to have credit cards. Some student cards, for example, have a maximum limit of S$500.

See also: How to Increase Your Credit Card Limit?

#5: Credit cards help build creditworthiness

By constantly repaying your credit cards in full, you will build up a record as a reliable borrower. This can help you secure critical loans in future, ranging from renovation loans to education loans for your children.

See also: How to Renovate Without a Renovation Loan?

Bottom Line: Credit cards are not inherently dangerous

Much like power tools or cars, credit cards provide a convenient and powerful way to use your money. A credit card is only dangerous when you are tempted to use it as a source of borrowed money, as opposed to a simple mode of payment.