Singaporeans are not new with using credit cards, however most people are still mindful of its negative reputation caused by well spread stories of individuals who went bankrupt because of snowballed credit card debt. There are a lot of common beliefs circling around credit cards, here are the facts you should know.
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Belief #1: Credit card interest rates can cause huge debts
Reality Check: Full repayments are not charged with any interest rate
Many Singaporeans avoid credit cards because they believe it has high interest rates which can cause debts. While it is true that credit card interest rates can have around 2% interest rate, this is only applied to outstanding balance. If you pay the whole amount within 27 days, then you will not be charged at all.
Only one in every five Singaporean ends up with unpaid balances, the rest are actually able to pay in full.
Belief #2: Credit cards are bad for your credit score
Reality Check: Use credit cards to get the much-desired AA rating on your credit report
Credit cards are unsecured loans you can get from banks. These loans are actually reflected in the credit history. If you are diligent enough when paying your balance in full on time, then you are actually nursing your credit score. Banks are actually more careful when lending to those with credit score Cx as this means there is not loan history to review and it will be hard to evaluate a person’s creditworthiness.
Belief #3: Saving is impossible with credit cards
Reality Check: Credit cards often come with rewards, rebates, vouchers and discounts
Most people view credit cards with just spending that they overlook the potential of actually saving with it. Credit cards come with special offers such as freebies, rebates, vouchers and discounts. While credit card is no doubt a payment option, you can get more from it if you are mindful of what else it comes with. You can earn free air mile and even cash rebates. Just make sure you do not forfeit these by understand its conditions.
Belief #4: Credit cards encourage too much expenditure
Reality Check: You can limit your credit to less than your monthly income to control spending
Most people think that when you have a credit card, you have a potential to be a shopaholic until you don’t realize that you have already an outstanding debt you can never afford with your current salary. In reality, the bank actually assesses your credit limit base on your current salary and debt history. If you want to avoid overspending, it is better to ask your bank to lower your credit limit.
Belief #5: You lose your assets if you fail to pay your credit card
Reality Check: Credit cards are unsecured loans
Since credit cards are actually unsecured, there is no need to pledge any assets which the bank can possess in case you fail to repay. Most Singaporeans are actually able to pay their credit cards, however if worse times come and you are unable to pay up, your loan will be defaulted. Defaulting due to credit card debt is very rare.
Belief #6: Credit cards attracts identity theft
Reality Check: You can do basic precautions to avoid identity theft
You must be careful to whom you give your credit card details. Do not post it anywhere online and never let these details lie around anywhere. While Associated Banks of Singapore (ABS) guidelines, instructs banks to only have you liable up to S$100 in case of falling prey to an identity theft, this does not apply to those who have been victimized due to serious negligence.
Dealing with Snowballed Credit Card Debt
If worse comes to worst, how are you going to deal with your spiraling credit card debt?
- Make the Minimum Repayment
You can ask your bank if you can make the minimum repayment because it is imposible for you to pay up the whole balance at once. Most credit cards have a minimum repayment of 3% of the outstanding loan or $50. Make sure that you can work out with the bank about an alternative date to repay your balance.
- Make a Balance Transfer
You can actually get extra time of around six months to pay your debt if you transfer your credit card balance to another credit card with 0% interest rate. While this seems to put off a lot of weight from your shoulders, it will be better if you avoid using any credit cards while you are still paying your balance
- Consider Using a Personal Instalment Loan
These personal instalment loans usually have an interest rate of 6% to 8%. It is like the balance transfer, however the personal loan has an interest rate which you also have to pay.
- Contact a Credit Counsellor
Get in touch with a Credit Counsellor or organisations such as Credit Counselling Singapore. While they do not give you cash to pay off your debt, they can help you device a customised repayment scheme so you can pay more at ease.
- Keep a good relationship with your bank
Keep in touch with your bank. This means never ignore its mails and e-mails. Also, never resort to legal actions. Banks are willing to help you out find ways to repay your balance, if you sue them their priority will shift to protecting the welfare of the bank and not you. Never do any threatening physical harm nor verbal abuse with the staff of the bank to prevent them from filing legal cases against you.
If you need cash to pay off your credit card to prevent it from blowing up, you can get your personal loan from Cash Mart.
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