Don’t let credit cards rob you!
Credit cards - talk to anyone in the older generation about them and 80% of the time, you’ll get an impression that credit cards are evil. They apparently make you overspend, get in debt, and do every other stupid thing that a good, thrifty, cash-wise person won’t do.
Do you use credit cards?
It’s not that they don’t make sense. They do, but only if you don’t have self-discipline and control over your own spending habits!
In fact, about 80% of my monthly expenses are charged to one of my 10 credit cards. I don’t spend a single cent more than I would if I were to, say, use purely cash or NETs. As a matter of fact, I saved over $500 last year simply by using credit cards.
There are many benefits of using credit cards - cashback, free insurance, travel protection, airmiles, fraud protection, discounts, etc. It’ll take another full post just to go through these, but generally, if you stick by the following simple principles, credit cards will do you only good.
Pay your dues in full every month / Don’t treat your credit card as a loan facility
Credit card companies in Singapore generally charge 24% interest per annum, or 2% per month. That’s daylight robbery (think about it, your savings account get 0.5% interest per annum), so don’t let them! This finance charge will apply if you have any outstanding amount unpaid by the due date.
For example, if you charged $10,000 to your credit card, and paid only $9,999 when the statement came, with an outstanding amount of $1. In the next month, you can be sure you’ll see a financing charge of $200, not $0.02! It gets even worse if you only pay the minimum sum (usually $50). Never, ever, do this.
That said, if you pay your bills on time, you essentially get an interest-free loan for a month (while the money that you supposedly bought stuff with is still collecting interest!), and privileges to top if off. Good stuff!
Pay your credit card dues on time
There’s another charge that’s slapped on you if you don’t even pay your credit card dues on time. It’s called the late payment charge. With online payment through internet banking these days, this should never happen - you won’t have to suffer the consequences of the cheque taking a long time to get to the bank through snail mail. Just log on and pay!
If you’re the forgetful sort, call up the bank and request for a GIRO form. You can make full payment through GIRO from a designated account. That way, you’ll always pay in full, and on time. I use this method for 9 of my credit cards, which I only use once in a while. For my main credit card, I have a recurrent reminder set on my phone to pay the bills two days before the due date.
A third way is to pay weekly, or bi-weekly (every 2 weeks). This reduces the stress when the statement comes, and it always seems to be in ONE BIG amount. Keep your receipts and make payment accordingly every 2 weeks. You’ll also enjoy the added benefit of being more conscious of the amounts spent thus far.
Keep track of how much you’re spending
Keep your receipts. Every week, or twice a month, log in to internet banking and set aside that amount spent to another savings account or even make the payment to the credit card directly (see above).
When I was trying to keep my spending under control, I used an application called Handy Expense on my Nokia phone to keep track of every single expense i had - food, transport, gifts, etc. I bring my phone everywhere with me, so it was convenient. You’ll be surprised where your money’s going. =) It cost me about $10, but saved me hundreds when I realized how I was overspending.
Some of my other friends use tiny notebooks. Do what works for you, but track your expenditure!
Are you one of those who doesn’t use credit cards?
Can you share with me why?
2 Comments, Comment or Ping
Katie Tan
Good post! I guess this really gives a new perspective. I need to start getting my finances in order…
Nov 3rd, 2008
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