The Dos And Don’ts Of Having A Credit Card (Or Two, Or Three)

A Credit Card Is Not A Loan Facility

Yes, everyone knows what a credit card is. However, over time some of us seem to lose track and it becomes something we turn to when we don’t have enough money. For instance, I have actually headed to expensive dinners or a drink with friends (which would have put my finances in the red for the month) knowing that I could always pay for it with my credit card. The result? It ends up becoming another credit facility that helps tide over periods when money is short.

Beware Of The Interest

The high interest rates charged by credit cards are also common knowledge. Everyone plans to pay off the outstanding before the high rates kick in. However, there may be times when we need to make a purchase that is not budgeted for (a household appliance for example). Or when we are careless about money management (like unnecessary dinners mentioned above). Either way, you are saddled with a much heavier and longer repayment amounts.

Do Not Get Carried Away With Interest-free Installments

In theory, this is a great tool designed to help keep your finances in shape by letting you make purchases without paying any interest at all. The unintended side effect is, you end up buying more than you should because now every item on sale looks like a good deal. Truth is, you end up spending far more than what you saved on the interest.

Credit Card Charges, Payments And Credit Limits Affect Your Credit Bureau Rating And Total Debt Servicing Ratio (TDSR)

The Credit Bureau and TDSR were introduced by the government to prevent Singaporeans from being over extended in terms of credit. In recent years, the both the requirements and enforcement of these regulations have become more stringent. The number of credit cards (which are seen as unsecured facility) you have, the outstanding amounts on those cards, any missed or late payments all have an impact on your Credit Bureau Rating and TDSR limits. Which in turn means you may find yourself having difficulty getting a home loan.

One Card Too Many?

The number one reason people apply for a variety of cards is to take advantage of the numerous promotions and deals that are offered by the different banks. It is not bad idea to maximise the benefits. Just be mindful to keep track of every card and every transaction in order to avoid late or annual fees.

Annual Fees Have Gone Out Of Fashion

There was a time when cards with a higher annual fee were seen as a premium card with better benefits. These days, most cards are happy to waive your annual fee. If they are not automatically waived, simply call the bank and request for a fee waiver. It is usually approved unless you have a history of late repayments.

How Many Cards Does A Person Really Need?

There are now cards for almost every need and segment. Shopping, dining, air miles, groceries, everyday purchases, rewards and more; you name it, they have a card for it. On average, two to three cards should suffice. Here are some considerations when choosing a card:

• Decide on a card that meets most of your needs as the more you charge on the card, the more the benefits including rewards points

• If you travel frequently, consider getting a card that is air miles oriented

• If you are a believer in putting purchases on interest-free instalments, perhaps you can have one card dedicated to it. So, the amount you are paying for the repayments doesn’t get lost among your other purchases

• If you love playing golf and qualify for the higher tier cards, apply for one that waives green fees. The savings can really add up

• A personal consideration for me is the level of service a card offers. For instance, some cards empower their customer service officers to make decisions immediately over the phone with regards to your requests

Credit Card Hacks

A few lesser known features of credit cards that may come in handy.

• Some credit cards offer complimentary travel insurance when you charge air tickets to them. While it is advisable to buy your own travel insurance (as you can decide on the features you need) too, it doesn’t hurt to have extra coverage. Check before travelling to find out what is covered

• Temporary credit limit – some cards allow you to increase your credit limit for a month in case of an emergency or an unexpected expense. Of course, be sure to use it sparingly and pay it up in full in time

• A few credit cards actually offer a comprehensive concierge services. You can book hotels, a golf game or a table at the most hip restaurant in town. This is especially useful when you are too busy to sort the arrangements

• There are savings programmes that offer a higher interest on your savings if you spend a specific monthly amount on your card. While the required spend may seem high, if you plan your spending carefully, it actually helps earn extra interest!

Live Freely. But Spend Carefully.

Obviously credit cards come with a whole host of benefits. Being card savvy earns you lots of freebies and great deals that translate into savings. The trick is to always be very, very mindful of your charges and expenses as they can spiral out of control quickly. Happy spending.