Should I Use My Credit Card to Pay for Everything?

There’s no doubt that credit cards offer a safe and convenient way to pay for the things we want and need. 

They can also provide rewards and perks that help us save money and unlock some extra value out of the dollars we spend. 

Additionally, credit card use can also help you build up your credit score, which is helpful when applying for a mortgage or other financial tools.

Clearly, the more you use credit cards, the more you can enjoy their benefits. 

On the flip side, credit cards can also spell trouble. The easy availability of credit tempts you to spend, while the option to keep rolling over your balance can make it easy to fall into a debt trap. 

So which is it? Should you use credit cards as much as you can? Or should you curb their use in the name of financial prudence?

One unbeatable benefit of paying with a credit card is the sheer convenience and speed with which you can complete your transaction. 

For most instances, you simply have to tap your card on an e-reader, and you’re good to go. 

You never have to worry about having enough money, or about getting the correct change back.

Credit cards provide a variety of rewards, perks and benefits that ultimately help you save money and make your dollar stretch that much further. 

Cashback gives you straight-up savings on qualifying transactions, while reward points can be saved up and redeemed for anything from shopping vouchers to exclusive products and even help pay off your bill. 

Meanwhile, air miles can be used to pay for air tickets, flight upgrades, hotel rooms and other holiday perks.

Each time you pay off your credit card bill on time and in full, you’re demonstrating fiscal responsibility and prudence. 

These are traits that banks and lenders look upon favourably, as they indicate how likely you are to repay a loan in a committed and responsible manner. 

Hence, paying with your credit card can also help you build up your credit score. This is important, as a low credit score can result in higher interest charges, or even prevent you from getting large loans such as a mortgage.

Unless you’re a fugitive on the run, paying with your credit card is almost always preferable to using cash. 

This is because carrying one card around is much easier and more convenient than walking around with a stash of cash. Also, should your credit get stolen or taken, all you have to do is to inform your bank and block your card to keep the funds in your bank account safe. 

On the other hand, cash that is stolen or lost is exceedingly hard to get back. Even if the culprit is caught, they might have already spent the cash they took from you, and there’s no guarantee of compensation.

Paying with credit cards can make it easy to overspend, even if you’re usually careful with your money.  

The speed and convenience with which you can pay for things certainly plays a part here, but there’s an even more insidious reason.

Researchers have found that by removing the presence of physical cash from the payment process, human beings are more willing to spend. This phenomenon is so well-known that it has even earned a name - The Cashless Effect.

Paying with credit cards can cause you to fall into a debt trap if you’re not careful.

Credit cards allow you to roll over your balance, but in exchange, you agree to be charged interest on the outstanding amount. 

This isn’t a problem if the amount is low and/or if you pay off your entire balance shortly - you’ll likely only pay a couple of dollars in interest charges. 

The trouble starts when you incur a large balance that you keep rolling over from month to month, or if you take a long time to pay off your credit card balance.

You see, credit cards charge interest on a compounding basis, which means the amount you owe increases day by day. 

If you only pay off the interest added to your balance for the month, you are only preventing your debt from growing.

If you want to start paying down your credit card balance, you’ll need to pay more than the interest charges for the month. 

Just for illustration consider this scenario. A balance of S$5,000 on a credit card with interest of 27% per annum will incur around S$112.50 in interest each month.

If you are only able to pay S$200 into your credit card balance each month, only S$87.50 goes towards your balance. The remainder - in this case, 56.25% - of your payment goes towards interest charges instead. 

Paying off credit card debt can prove difficult if your credit card balance grows beyond a certain point. You may even find yourself falling into a debt trap from which it is difficult to escape.

The bottom line? 

Like all the finer things in life you can buy with them, credit cards are best enjoyed responsibly.

Look, if you’re going to spend money anyway, you might as well help yourself to cashback, rewards points and air miles. 

Also, being a cardmember will give you access to exclusive deals from your favourite brands, as well as perks and privileges such as free airport lounge visits and complimentary travel insurance. 

So given all these advantages, you should use your credit card every opportunity you get. 

However, there is one cardinal rule you should strive to keep: Never carry a balance, and only spend what you can afford to pay off. 

This means that for a large purchase, you should first save up the funds in your bank account, before paying with your credit card and reaping the rewards on your transaction.

Also, credit cards often have credit limits that are higher than your monthly salary. This can make you feel overconfident and encourage overspending. 

To help prevent this, be sure to lower the available limit on your credit card, such that it reflects your actual financial status. You can always request a limit increase when you need to.