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FRANK thoughts on money , lifestyle and career

Credit Cards: Yes or No?

I did my homework and discovered an awful truth: The Credit Card is not the thin, plastic embodiment of ultimate evil. In fact, it comes with some benefits that I now use every day:


Ah, the credit card. Often misused, abused and misunderstood.

There are plenty of stories about how it drives people to crazy shopping sprees. You might even have heard about people who have lost their savings, homes, and even lives because of credit cards. I definitely heard those stories for the first 25 years of my life, so I struggled with the idea of even getting one for a long time. The curious cat in me wanted to see another side of the story, though.


"The Credit Card is not the thin,
plastic embodiment of ultimate evil."

I did my homework and discovered an awful truth: the Credit Card is not the thin, plastic embodiment of ultimate evil.

In fact, it comes with some benefits that I now use every day:


"Discounts"

Discounts: When I go to a restaurant, I always ask the waiters if there are discounts or special offers when paying with a particular credit card. I sometimes get 2-for-1 meals or other discounts just by using the card instead of cash.


"Rebates, Miles and Points"

Rebates, Miles and Points: I automatically earn rewards on most credit cards in the form of direct cash returns (rebates), loyalty points that can be redeemed for gifts, or miles that can be exchanged for air tickets. I often use the FRANK credit card, to 6% off on purchases I make online (and this isn’t promotion- you can see my profile picture for proof).


"Convenience"

Convenience: I spend less time queuing at ATMs now. Instead of using cash, I use credit cards and, unsurprisingly, find that I don’t miss standing in line at all. I don’t worry about having too much or too little money on me, especially when travelling. After all, I don’t want to exchange and carry too much foreign currency around when I don’t have to.

There’s always a catch, though. The interest rate on credit cards can be 24% or more each year. We get that charge when we do not pay up the full amount billed to us before the specified date.


"If you return what we’ve spent to the bank within a
certain period of time (usually within a month),
then it doesn’t charge us interest"

Think of it this way: when we use a credit card, we’re borrowing money from the bank, which pays the shop-owner on our behalf. If you return what we’ve spent to the bank within a certain period of time (usually within a month), then it doesn’t charge us interest. If we pay up, but late, then we get charged a penalty for late payment as well!

This means that we have to control your credit card spending so that we can clear our bills on time each month.

There are some simple things I did (and still do) to achieve that goal:


"I set a budget"

I set a budget. I don’t spend up to my credit limit each month. I use a simple plan to make sure of that; when I get my paycheck, I save and invest part of it first. I then reserve some money for things that I can’t avoid spending on, like transport and food, and only use whatever is left on having a bit of fun. I keep to those limits and I always know that I don’t spend more than I can afford. It sounds pretty tough, but I only really need to do the planning once or twice a year, then stick to the plan.


"I monitored my spending"

I monitored my spending. I keep records of my daily spending and know if I am spending too much. There are many apps which can help with that; I use Money In$ights to track my spending automatically, so I know exactly how much I’ve spent.


"I keep my credit limits low"

I keep my credit limits low. I reduced the credit limits on most of my credit cards to prevent myself from spending excessively on a whim. The amount I can spend on those cards is less than a month’s salary.

Overall, I think credit cards have pros than cons, but it takes a little bit of effort to spend responsibly. These methods work well for me personally. What works for you? Do you have other ideas on how to control your credit card spending? Feel free to share!

POSTED:
January 14, 2015

WRITTEN BY:
 Chi Hou

About Chi Hou
Loves writing, thinking, eating and drinking, sometimes all at once. Currently works as an Assistant Vice President at OCBC Bank, specialising in Personal Internet and Mobile Banking. Studied Economics at SMU and writes about general economic concepts and practical advice about money.