To reap all the benefits of a credit card without going into debt, master these money habits first.
Many Singaporeans believe in all sorts of credit card myths and the perceived damage they do. We’ve heard horror stories of people accumulating thousands of dollars in debt after credit card-fueled shopping binges or holidays abroad.
But like any tool, credit cards in Singapore are only as beneficial or harmful as you make them out to be. Unlike paying in cash, this piece of plastic lets you earn rewards, discounts, or air miles from every single dollar you spend on it. As long as you have the right habits in place, it’s easy to use them to your advantage.
Before getting a credit card, master these money habits first.
1. Paying Your Bills in Full and On Time
We probably sound like a broken record, but this point really bears repeating. If you can pay your phone bill on time, without your mum nagging you, you’re probably ready to own some premium plastic.
The only time you will ever accumulate credit card debt is if you don’t pay your credit card bill in full and on time. So long as you keep doing this, you never have to worry about owing hundreds of dollars to the bank.
Additionally, credit cards are also only useful when you don’t carry a balance. Miles, cashback, or rewards only get awarded to accounts that are in good standing.
2. Making a Budget and Sticking to It
There are budgets that suit different personalities or lifestyles. Use whatever budgeting system you want - the important thing is that you stick to it. Some examples include the zero-sum budget, Dave Ramsey’s envelope system, and the JARS money management system.
Instead of thinking of a budget as a “restriction” or “deprivation”, view it as a way to maximise your money’s worth.
Having a budget in place is critical because it’s tempting to chase rewards and spend more than you do in the process. Your ability to keep a budget is a great indicator of how disciplined you’ll be with your new piece of plastic.
3. Using Credit Cards as a Mode of Payment Only
The fastest way to debt is to view your credit card as an “unlimited source of cash.” Its opposite viewpoint, “spending money you don’t own”, lets you miss out on the perks of owning a credit card.
Instead, think of your credit card as a method of payment. It’s a convenient way to buy things and earn rewards in the process.
One good rule of thumb is to get a card that rewards you for things you already spend on. Then only buy stuff on your credit card if you know there’s an extra perk attached.
To illustrate, look at two popular rewards credit cards. The Citi Rewards Card gives 10 Rewards points for every S$1 spent on shoes, bags, and clothes at department stores or online. You get 1 Reward point per S$1 on other spend.
The HSBC Revolution Card, meanwhile, gives 5 points for online shopping, dining, and entertainment. You get 1 Reward point per S$1 on other spend.
Let’s say you love fashion and spend S$500 a month on clothes, but not much else on others. Here's how many points you would earn in a month with both cards:
Total Rewards Points
|Citi Rewards Card||S$500 x 10 Reward points = 5,000 points||S$100 x 1 Reward points = 1,000 points||S$100 x 1 Reward points = 100 points||S$200 x 1 Reward points = 200 points||6,300 points (winner)|
|HSBC Revolution||S$500 x 5 HSBC Rewards points = 2,500 points||S$100 x 5 HSBC Rewards points = 500 points||S$100 x 5 HSBC Rewards points = 500 points||S$200 x 1 HSBC Rewards points = 200 points||3,700 points|
If you love shopping for clothes, it makes more sense to use the Citi Rewards Card because it gives 10x more points over other categories, which nearly doubles the total points you get. You can then redeem these points for over 300 fashion vouchers, or convert your points to air miles.
Now let’s say you’re a foodie and with an active social life. You spend S$500 at restaurants and S$250 at bars each month, but not much else on others. Here's how your points would add up on both cards:
Total Rewards Points
|Citi Rewards Card||S$50 x 10 Reward points = 500 points||S$500 x 1 Reward points = 500 points||S$250 x 1 Reward points = 250 points||S$100 x 1 Reward points = 100 points||1,350 points|
|HSBC Revolution||S$50 x 5 HSBC Rewards points = 250 points||S$500 x 5 HSBC Rewards points = 2,500 points||S$250 x 5 HSBC Rewards points = 1,250 points||S$100 x 1 HSBC Rewards points = 100 points||4,100 points (winner)|
The HSBC Revolution Card is the better choice because it gives 5x points on dining and entertainment, and more points overall. Points can be redeemed for a wide collection of dining vouchers, so you can eat out for less.
These simple examples show how a credit card can reward you, if you use it mindfully and for things that matter.
4. Saving 20-30% of Your Income
If you ever want your financial situation to improve, you must save money. Having savings gives you peace of mind, protects you during emergencies, and opens more options in life.
Master the habit of saving at least 20% of your monthly income after CPF, and aim to build an emergency fund of 3-6 months of your income. In case you lose your job or some other financial emergency happens, you won't be forced to use the cash advance option on your credit card.
5. Maintaining a Great Credit Rating
Having a good credit rating is a sign that you’ve developed responsible financial habits. It also gives you access to better credit cards, mortgages, and other loans.
If you applied for a credit card or loan, you can obtain a copy of your credit report from the Credit Bureau of Singapore (CBS) for free starting 1 April 2016. Simply log on to the CBS website with your SingPass ID to get your credit report within 30 days of your credit application's approval or rejection.
Maintaining a high credit score is as simple as Point 1 - paying your credit card bill in full and on time. You should also avoid getting too many sources of credit, i.e. applying for 3 credit cards all at the same time, as this will negatively impact your credit rating.
6. Controlling Your Impulses
It’s easy to shop impulsively, especially when you know that your card can give a discount or 5 times more points. But you shouldn’t use rewards as an excuse to spend more.
The ability to curb your impulses will help determine whether or not you’re ready for a credit card. If you’re having trouble staying disciplined and your finances are stretched thin, it’s probably best to avoid credit cards for now.
But if you can control your impulses and stick to your budget, then you can enjoy your money and earn points on a credit card without sliding into debt. With your budget as your guide (review Point 2), give yourself some allowances for shopping, dining, and other activities you enjoy.
Here are some tricks to help you stop impulse shopping in Singapore.
Owning a Credit Card is a Responsibility
It’s possible to own a credit card without ever going to debt. But for this to happen, you need good money habits in place. You can’t use a credit card to earn rewards without discipline and self-control.
Fortunately, it’s not that hard to develop these good habits. As long as you can keep track of when your bills are due and stick to your budget, the rest will follow.
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