Credit Cards – More is not Merrier
Remember the old 5cs dream of a typical Singaporean-Cash, Car, Country Club membership, Credit Card, and Condominium? Well, the country club is outdated, the car and condominium will always be too expensive, and cash is still as elusive. The credit card, however, has become the easiest C to attain, and even students are able to get a piece of plastic in their wallets before they earn their first paycheck. But, as with most things that come too easily, there are potential traps and pitfalls.
Here are reasons why you should keep calm no matter how many pieces of free suitcases the salesmen throw your way. And, tips on optimizing your credit cards.
You May Not Be Saving as Much as You Think
Having multiple credit cards to take advantage of various rewards and rebates may seem sensible. But truth is, unless you’re a big spender, there’s only so much you can charge to your cards, and using too many of them would reduce the amount you spend on each and hence, lower the rebates or rewards you get.
For example, credit cards which come with a cashback often impose a minimum spend requirement each month, or even require consecutive months of the same level of minimum spending. So, if you are using five other credit cards to take advantage of on the spot discounts and rewards points, you may find that you’re not really getting the cashback you signed up for.
What You Can Do
Prioritize your needs and spending habits. If you spend $1000 a month on credit cards, figure out what you spend the most on. There’s no point in getting a 5% cashback credit card when you barely meet the minimum spending requirement.
Consider the following options:
- Everyday purchases. Choose one that gives you a decent cashback without a high minimum spend requirement. For example, the ANZ Optimum World MasterCard Credit Card gives you 1.5% cashback on all purchases. However, if you’re a driver, you may give priority to petrol discounts and consider the Citibank Dividend Card, which gives up to 18% discount at Shell and Esso.
- Entertainment and Dining. If most of your expenses go into wining and dining, choose a card that gives you the greatest dining discounts. Check out the list of restaurants that the card partners with before signing up. There’s no point getting a premium-dining card if you eat out often at casual joints.
- Shopping Rewards. Some credit cards partner with boutiques on the higher-end while others offer discounts at online retailers. Choose one that best reflects your style instead of having them all.
- Travel. A travel credit card is often best leveraged when you’re spending overseas, as many usually offer a better miles-to-dollar rate when you spend overseas. Also, some cards come with travel insurance, which makes having a travel-specific credit card sensible.
You May Be Hurting Your Credit Score
If you’re always on the ball when it comes to managing your credit card expenses and are making sure that you do not exceed your credit card utilization rate, then this would not be a problem. If not, you may be at risk of lowering your credit score with multiple credit cards to manage. Don’t underestimate what a few late payment charges can do to your credit score.
This is also especially true if you apply for to many credit cards at once. If you get tempted on a credit-card application spree to try and snag vouchers or thousands of bonus miles, the multiple credit checks within a short time frame may result in the credit bureau lowering your credit score, since asking for many lines of credit at the same time makes you seem rather suspicious.
What you can do
If you’re shopping for credit cards, make it a point to apply for not more than one or two in a month. And, if you foresee a big purchase (e.g. paying for a wedding), plan ahead and spread out your card applications.
It’s Easy to Lose Track of Spending and Payment Dates
There are those highly meticulous spreadsheet lovers who zealously track of everything and never lose track of how much they’ve spent, and pay their credit card bills the moment they receive them. And then, there’s the rest of us.
It’s easy to lose track of your credit card spending and payment dates. Take a two-week vacation to a remote island and you may come back with a few late payment penalties. Or, lose a little control online shopping and find your credit card utilization rate shoot up faster than you can say “Sale!”
What you can do
Whether you have a few or many credit cards, make use of user–friendly money management apps. There are apps that not only track your expenditure, but also have bill payment reminder features so there’s absolutely no excuse to forget.
If you want to avoid late payment charges and being slapped by ridiculous interest rates, opt for the GIRO payment system for some, if not all of your cards. This will save you some trouble, but also remind you every month that you are actually spending your hard earned money, and not from a phantom charity.
When managed well, credit cards can be great financial tools. It’s well worth the time to do your research and focus on having a few quality cards instead of a deck of mediocre ones that could end up as a financial burden.
For more financial tips and tricks to optimise your financial lifestyle, visit imoney.sg and learn all the best moves to make with your money.