Singaporeans are not new to cashless spending. However, some are still scared of credit cards.
Most people are still mindful of its negative reputation. In addition, the widespread stories of individuals who went bankrupt because of snowballed credit card debt. Also, there are a lot of common beliefs circling credit cards. Here are the facts you should know.
Reality Check: Full repayments are not charged with any interest rate
Many Singaporeans are scared of credit cards because they believe it has high-interest rates, which can cause debt. Credit card interest rates can indeed have around a 2% interest rate. But, this only applies to any outstanding balance. If you pay the whole amount within 27 days, you will not be charged.
Only one in every five Singaporean ends up with unpaid balances. The rest can pay in full.
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 reflect in the credit history. If you are diligent enough to pay your balance in full on time, you are actually nursing your credit score. Banks are more careful when lending to those with credit scores of CX. It means there is no loan history to review. Plus, it will be hard to evaluate a person’s creditworthiness.
Reality Check: Credit cards often come with rewards, rebates, vouchers and discounts
Most people view credit cards as just spending. Often, they overlook the potential of actually saving with it. Credit cards come with special offers. Examples are freebies, rebates, vouchers and discounts. While a credit card is undoubtedly a payment option, you can get more from it. However, you need to be mindful of what else comes with it. In addition, you can earn free air miles and even cash rebates. Just make sure you do not forfeit these by understanding their conditions.
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. Moreover, people get scared of credit cards because they don’t realise their actions fast enough. For example, you already have an outstanding debt you can never afford with your current salary.
The bank assesses your credit limit based on your current salary and debt history. Therefore, if you want to avoid overspending, it is better to ask your bank to lower your credit limit.
Reality Check: Credit cards are unsecured loans
Since credit cards are unsecured, there is no need to pledge any assets. It means that the bank can not possess in case you fail to repay. Most Singaporeans can pay with their credit cards. However, if worse times come and you cannot pay up, your loan will default. Defaulting due to credit card debt is very rare.
Reality Check: You can do basic precautions to avoid identity theft
You must be careful with whom you give your credit card details. Do not post it anywhere online. Also, never let these details lie around anywhere. Associated Banks of Singapore (ABS) guidelines instruct banks to only have you liable for up to $100 in case of falling prey to identity theft. However, this does not apply to those victimised due to serious negligence.
If worse comes to worst, how will you deal with your spiralling credit card debt?
You can ask your bank if you can make the minimum repayment because it is impossible for you to pay up the whole balance at once. For example, most credit cards have a minimum repayment of 3% of the outstanding loan or $50. Furthermore, make sure that you can work out with the bank about an alternative date to repay your balance.
You can get extra time of around six months to pay your debt. It is possible if you transfer your credit card balance to another credit card with a 0% interest rate. It may seem to put off a lot of weight from your shoulders. But, it will be better if you avoid using any credit cards while still paying your balance.
These personal instalment loans usually have an interest rate of 6% to 8%. Therefore, it is quite similar to a balance transfer. However, the personal loan has an interest rate which you also have to pay.
Get in touch with a Credit Counsellor or organisations such as Credit Counselling Singapore. However, they do not give you cash to pay off your debt. Instead, they can help you devise a customised repayment scheme. This way, you can pay more at ease.
Keep in touch with your bank. It means never ignore its mails and e-mails. Also, never resort to legal actions. Banks are willing to help you find ways to repay your balance. However, if you sue them, their priority will shift to protecting the bank’s welfare and not you. In addition, never do any threatening physical harm or verbal abuse to the bank staff. It prevents them from filing legal cases against you.