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:
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 3% cashback at all supermarkets. Here's how much you can save on groceries with this credit card:
Weekly Groceries Spend
|Monthly Savings on Groceries|
Annual Savings on Groceries
By using the right credit card for the right purpose, you can save significant amounts over time. You can check for credit cards that match your financial needs through SingSaver.com.sg’s comparison tools.
2. Credit Card Debts are Not “Impossible” to Repay
Credit cards have a high interest rate of around 2% per month. However, responsible credit card users never pay this.
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. 2% of $0 is $0.
The credit card’s interest rate is only incurred if you spend without repaying.
In the event that 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 (around 0.6% per month), and use it to repay the credit card debt.
3. There Are Many 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.
Should someone else obtain your credit card and charge large amounts to it, you will receive SMS alerts on your phone. You will often also be asked to send confirmation of the charges, or else the bank will call you.
Under Associated Banks of Singapore (ABS) guidelines, your maximum liability from identity theft is S$100 (provided you were not negligent).
4. You Can 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.
5. Credit Cards Help Build Your Creditworthiness
By constantly repaying your credit cards in full, you will build up a record as a reliable borrower. This can help you to secure critical loans in future, ranging from renovation loans to education loans for your children.
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.