Credit Cards

Credit Cards – How To Avoid The Dangers That Lurk Beneath

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Serene Anne

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The thrill and rush of unveiling that shiny new piece of plastic from a small envelope. The feeling of sheer power when you nonchalantly hand your card over to the cashier for that big ticket purchase (yeah, don’t pretend. You know that smug look). We are a nation who loves our plastic, perhaps a bit too much. Our new credit card expert Serene Anne hands out some words of caution on how to effectively manage these potential time bombs.

Let’s start off with a true story recounted to me that may seem all too familiar to some of you:

My friend, let’s call her L, was thrilled to get her own credit card shortly after she started her first job. She got the satisfaction when using it as the card was a statement of how much she was earning, and it was so easy to shop without having to spend any money.

Pretty soon, she maxed out her credit limit on that card, and applied for another one to pay for the bills on the first card. Needless to say, she did not stop spending and the bills snowballed. Banks started calling L, but she avoided them thinking it would all go away. It was only till she received a letter from the bank’s lawyers that she realised how serious the situation was. 

 

What Is Wrong With This Picture?

Like L, we all love our credit cards, in fact all 7.6 million of them. That is the total number of credit cards sitting in our wallets as of April 2013, according to the Monetary Authority of Singapore (MAS). What is there not to love? It is convenient, gives us great discounts, exclusivity as “the men don’t get it” and earns us everything from vouchers to plane tickets.

However, we seem to be spending more than we can, as the amount of unpaid balances being rolled over each month totalled $5 billion as of April 2013. This may or may not surprise you but it is a bad, thing because rollover balance = bad credit rating = may affect your ability to secure loans in the future. To avoid becoming another L, keep these tips in mind:

 

1. Hold No More Than 3 Credit Cards

 

This isn't like those racing car card games.
This isn’t like those racing car card games.

 

The irony of this is that this piece of advice is coming from someone who owns 11 credit cards. However, unless you have a photographic memory or a systematic way of monitoring your budget and tracking payment due dates, limit yourself to not more than 3 cards.

Remember (and this is something easily forgotten), whatever we hand over our card for, we still have to pay for them at the end of 30 days. By swiping too many cards, it is easy to overspend, especially with technology such as Visa payWave.

On the other hand, we want to maximise the benefits of our spending, so by keeping a few cards for specific purposes e.g. a card for petrol, one for groceries and another card for everything else, it will help us spend within our means.

 

2. Never Cancel Your First Credit Card

 

Oh well at least I can still use my old cards for something else.
Oh well at least I can still use my old cards for something else.

 

If you’re already looking at your designated credit card wallet and wondering which one to let go, think twice. Always keep your first credit card, as you would have the longest credit history with that bank.

This is of course assuming you pay your bills in full. I’m not even going to go into a point about paying your bills. A good, clean credit record is useful when applying for cards or loans with other banks or when requesting for a fee waiver.

 

3. When Shopping Online, Use The Card With The Lowest Limit

 

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I… Just… Can’t… Stop.

 

Alright ladies, here we go. Men, don’t pretend this doesn’t apply to you too.

I know of friends who buy almost everything online these days, from baby strollers to pet gates. It is easy to get carried away at our favourite sites during Cyber Mondays or Pre-GSS specials, where saying “no” is just, you know, obviously out of the question.

Before we know it, we have checked-out tons of stuff that we probably do not need. To avoid raking in an unexpected bill from your online purchases, designate one card for all the online shopping. Request the bank to lower the credit card limit to the budget that you have set aside for shopping each month, e.g. $800.

In this way, you can still shop with peace of mind that you’re not going to rack up a humongous bill.

 

Finally…

If you know of someone in a similar situation as L, do advise them to have a discussion with the banks. All they want rightfully is their money back, so work out a repayment plan with them. There is always a solution to everything.

As for the rest of us, spend safe and be MoneySmart!

 

Have a credit card nightmare to share? We’d love to hear your story here!

Image Credits:
catfishstu, demosphereJudeanPeoplesFront, JM Photography LV

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Serene Anne

Walking my dog, practising yoga and enjoying an ice-cold beer are some of the fun things I do, but the geeky side of me enjoys reading and sharing the financial tips and promotions with my friends. Read our site, spend safe and be moneysmart!