♠️ Pros and cons of credit cards

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You’re actually losing money

Let’s look at the reasons why people don’t get credit cards (apart, of course, from the hassle and trouble of applying for it). 

Many of you probably have debit cards, which offer you some of the same basic cashless convenience. But a debit card is basically cash (apart from the convenience of not carrying actual notes around) because it withdraws directly from your bank account.

“What’s so bad about that?” you might ask. By using debit cards, you could be indirectly subsidising credit card users! 

Let me explain. Let’s say you get a nice meal at a fancy restaurant to celebrate your birthday with a few friends, and it comes up to S$80. Apart from the cost of what you eat, that figure includes

• Service charge (10%)
• GST (7%...though it’ll be 8% from next month :’) ).

But there’s an invisible cost that most eateries would have built into their prices, and that’s the credit card processing fee. This is the fee they pay to banks and card payment companies, which is usually about 3%. Merchants often pass this 3% to their customers i.e. YOU.

Most places don’t charge customers different prices for using different payment methods, so this effectively means that if you use a debit card or cash, your S$80 meal includes S$2 you’re paying for without the rewards or benefits your credit card-using peers receive :(

But, but, isn’t debt bad?

Okay so, some of you, like me, may be constantly anxious about forgetting to pay bills and getting charged for late payments. And some of you may also have been taught: “don’t spend what you don’t have” i.e. DEBT IS BAD.

Well, debt is bad only because it can affect your personal cashflow and whether you have enough for an emergency. But there are many cases in which not having a credit card could actually be worse, e.g.:

Case 1: You want to buy an expensive but necessary item, such as a laptop. You’re not an irresponsible spender; you know that this laptop will allow you to be more productive and learn new things for months and years to come. But because you only use cash and you don’t have enough of it on hand, you have to save up for months to buy it. :(

Case 2: You want to take out a loan for your BTO. But you’ve never used a credit card, so you haven’t been able to build up a credit score (used by banks to determine how likely you are to repay money owed on time). The bank doesn’t approve your loan and now you can’t move out. :(

In Case 1, having a credit card would have allowed you to pay for and use the laptop first. You might have used that laptop to learn a new skill or get a new job in the months that you would otherwise have to wait to save up enough money. In fact, some credit cards even offer interest-free installment plans for select merchants. The cash that’s freed up can also make you more financially secure because you could either invest it responsibly, or save it.

And Case 2…well, that’s obvious enough. PLUS, the local banks - DBS, OCBC, UOB - all have flagship savings accounts that provide higher rates if you use certain credit cards in their catalogue. So even if you are looking to save money, credit cards help!

The don’ts of credit cards

Ok, as with anything, there are some risks:

• Don’t be late. Having to pay late fees will cancel out any benefits and ruin your credit score.
• Read the T&Cs. There are limits to good things – be aware of the limitations on cashbacks and caps on rewards. 
• Waive annual fees. Yes very troublesome to pick up phone (who even calls anymore???) and call customer service but…we all do things for money.

If you’re worried about your ability to keep track of your spending or the small print, get a card that fits your lifestyle. E.g. apply for a credit card that has no minimum spend, which can help you avoid the temptation to spend more just to receive meagre rewards.

So keep all this in mind, but otherwise: