Singaporeans must know the avoidable credit card mistakes to save their finances.
Most Singaporeans are mindful of their credit cards. They usually believe that it could lead to snowballing debts. Yes, you can use it to add convenience to your daily life. However, simple mistakes can lead to a lifetime of suffering if you are not careful.
According to Credit Bureau Singapore reports, there is an increase in Singaporeans with outstanding credit card debts.
Around 5% of those have unsecured loans for missed paying $288,445,498 on time. It makes a significant increase of 74% from 2011.
Overall, the number of debtors in 2011 jumped by 32% in 2015. They are the 85,352 Singaporeans who missed at least two or more months of payments.
The Monetary Authority of Singapore (MAS) created new guidelines for financial institutions. It regards approving credit cards and other unsecured credits. Unsecured loans do not require any asset or pledge for approval.
The previous guideline mandates financial institutions to deny further unsecured credits to any Singaporean who failed to pay unsecured debts for three consecutive months. It is worth 12 times the person’s monthly salary. The law is to help Singaporeans avoid excessive debt, which may lead them to further financial dilemmas.
Currently, the limit is up to 24 times the monthly income of Singaporeans. However, in June 2017, the limit will lessen to 18 times the monthly income. Soon, by June 2019, the limit will be again back to 12 months’ worth of monthly income.
Most of the population can pay their debts. However, many Singaporeans still have outstanding debt beyond their capability to pay.
Credit cards are financial tools that you must handle responsibly. However, you should consider the fine prints every time you use them. Also, avoid unnecessary fees and charges. In addition, you must never get carried away with a shopping spree. Here are the most common avoidable credit cards mistakes to remember.
Imagine that you have multiple credit cards. Then, you maxed all of them. How are you going to escape?
The usual solution for most Singaporeans will be to pay the minimum payment of each credit card. Usually, it costs 3% or $50. However, they tend to forget that the remaining balance will still be charged at 25% per annum. So it keeps on rolling and snowballing as long as you haven’t settled the bill.
You can prevent this mistake from happening. Contact your bank as soon as you realize that you can’t pay the bill. Most people think banks will take advantage of those who can’t pay. However, banks actually are willing to work with their clients. It gives them other less painful options when settling their bills.
One option is an interest-free balance transfer. You can transfer your balance to another card. In addition, this is a new card. There will be no incurring interest fee for a certain period. It gives you around 3 to 12 months to work out a way to pay off your balance.
We all know that missed payments will cause late payment fees on top of the high-interest rate. However, there are still individuals who are unable to pay on time. Others make it worst and just leave it unpaid with the balance growing each day.
For example, you purchased a G-Shock watch at $768 and paid it on the due date. Therefore, there will be no interest rate charges. But, if you missed your payment, a late payment fee of 3% or $50. Your charge depends on whichever is higher.
$768 + $50 = $818
In addition, do not forget about the 25% interest rate per annum.
To avoid incurring charges, create reminders on your phone and your actual calendars. It will be better to pay your fees immediately. If not, as soon as you can. Also, keep yourself motivated. Remind yourself of the perks if you follow avoidable credit card mistakes.
With multiple credit cards, come multiple accounts to pay. Also, there is a higher chance of missing your due payments dates. Most Singaporeans even forget that credit cards have annual fees. Do you have five cards? Then, there are five annual fees to settle. In addition, there are five billing cycles to keep an eye on. Plus, five due dates to track.
As recommended, you have at least two credit cards as much as possible. Choose a card that gives cash rebates. These cards charge 6 to 8%. Often, the cap is at $80 a month. Take out all the cards you have. Then, analyze which ones you usually use. Also, identify which ones do not generate savings.
If you have outstanding fees blowing on your face, then a cash advance will sound like your lifesaver. However, this is very risky as a cash advance. Usually, it has a charge of 28% per annum.
Avoid this financial dilemma. Always have an emergency fund. Or better yet, get a personal loan with a charge of up to 4% interest rate. Another option is to use credit lines charged as low as 8.8% per annum.
Credit cards are also known for freebies, rewards, and gifts. However, do not consider it your primary consideration when looking for a credit card.
In addition, choose a credit card you will use for things you usually spend. Examples are your groceries, petrol and online shopping.
Most of the time, credit cards require a minimum amount spent before you become eligible for rewards. As a result, you keep spending to get these rewards and freebies. Afterwards, you will generate too much debt that will be hard to pay off.
On the other hand, if you want a credit card for a one-time expensive purchase, you can easily get a flexible personal loan with competitive interest rates.