Thursday, 7 April 2016

Why you should use credit cards

I was thinking about writing a series of posts on analysing why and how we invest into the specific stocks in our Share portfolio. Given that we intend to focus much more on building up our ETF portfolio from now, it didn't make much sense to do that any more. Besides, there's also not much point in me dedicating a series of posts on our strategy of buying ETFs every month - more in bad months and less in good months.

I decided to go out on a limb and write about something more controversial - Why I think working adults should use credit cards especially in Singapore. I know this topic is more specific than the actual title of my blog post, which just sounds more catchy. I'm actually going to use my family and the credit cards we have as examples for the points I will make on the reasons for using credit cards. Hopefully this makes the post more personal and relatable!
Pay less for petrol

My brother doesn't believe in credit cards to the point he actually cancelled the one and only credit card he had (which I applied for him soon after he started work because I thought it would be useful for him to have at least one credit card). When my brother drives the family car to the petrol station, he pays for the petrol using Nets, which does not qualify for the many cash rebates you can get by paying for the petrol using certain credit cards at certain petrol stations. For example, the use of Citibank credit cards at Shell stations gets you at least 4% cash rebate. Can you imagine paying full price for petrol in Singapore?

Pay less for utilities

Many households in Singapore have utilities bills from SP Services. My mother used to pay her SP Services utilities bill via GIRO until we realised it's possible to get 1% cash rebate from paying the SP Services recurring utilities bill using her POSB Everyday Card.

Pay less for public transport

We use our POSB Everyday Cards as EZ-Link Cards when taking the bus and MRT. There is an auto top-up function by using EZ-Reload and we get 2% cash rebate.

Pay less for mobile/broadband/cable TV

Most people have some form of telco bills in Singapore. My sister used to pay for her Singtel mobile bill and the family Starhub broadband & cable TV bills via GIRO until we realised it's possible to pay for these bills online using a credit card. For example, you get 3% cash rebate from paying these recurring telco bills by using the OCBC 365 Credit Card.

Pay less for groceries

My mother used to pay for the groceries using cash. It took some time but I finally convinced her to start paying for the groceries using a credit card. You can actually get 3% cash rebate from paying for groceries using the OCBC 365 Credit Card!

Pay less for dining at restaurants

Okay, my family does pay for restaurant dining bills using credit cards but they were using rewards cards i.e. earn points from spending and redeem for stuff. Personally, I'm not a big fan of rewards credit cards since I find the items you redeem for actually encourage you to spend more. The OCBC 365 Credit Card offers 3% cash rebate for weekday dining and 6% cash rebate for weekend dining.

Earn more interest

In Singapore, spending on certain credit cards allows for higher interest to be earned on certain bank accounts. For example, the link between the UOB One Card and the UOB One Account or the link between the OCBC 365 Credit Card and the OCBC 360 Account.

Why use credit cards?

The cash rebates accummulate and work by reducing the credit card bills in the next billing month. Granted, most credit cards have minimum monthly spending amounts before you qualify for the above generous cash rebates. It's S$600 for the OCBC 365 Credit Card and there is a cap of S$80 on the cashback amount per month.

A good way to meet the minimum monthly spending amounts is to combine the spending of related parties. For example, I am the main card holder of the OCBC 365 Credit Card but my wife and mum are supplementary card holders. That way, I combine our separate telco, groceries and dining expenses to meet the minimum monthly spending amount of S$600 without each party having to spend more.

A credit card is a financial tool and a working adult should develop the discipline and learn the skills to utilise it. If you find yourself overspending and incurring large credit card debts, you have a much bigger problem than learning how to invest. I'm not saying you can't be an investor without having a credit card. What I am saying is that the discipline and skills one needs to learn to be an investor is similar to that one needs to learn to use a credit card.

One of the many reasons above should be good enough to motivate you to start using credit cards effectively and efficiently. Don't underestimate the cash benefits from doing so because a working adult in Singapore is actually spending on many of the items I have mentioned above and the cash rebates you are missing out on can really add up. The additional interest you can earn from linking the credit card to the bank account is also significant. More importantly, don't overlook the discipline and skills you will develop from using credit cards well.   

10 comments:

  1. Hi TFS,

    I'm more interested in why your brother dislike credit cards so much. Bad experience?

    ReplyDelete
    Replies
    1. Hi LP,

      My brother just seems to think credit cards are evil and never wanted one. I applied for him the one and only credit card he owned so he can charge his travel expenses like flights but he cancelled it soon after receiving it. I still have no idea to this day why my brother dislikes credit cards so much!

      Cheers,
      TFS

      Delete
  2. With a credit card, it can easily lead to overspending

    ReplyDelete
    Replies
    1. Hi starlight,

      I agree with the sentiment but I reckon the propensity to overspend should not outweigh the benefits from using a credit card. It's a matter of how much discipline one has to control the spending on the credit card.

      Cheers,
      TFS

      Delete
  3. spending cc still means you have to pay interest of the usage to your bank which cancels off the cash rebate and still pay on top of that to your bank. so why would you still use it? also do you recommend any in australia?

    ReplyDelete
    Replies
    1. Hi etro,

      When you spend on a credit card, the charges accumulate until the end of the billing monthly cycle whereby you will be issued a credit card bill. From that point, you will have a few weeks to pay off the credit card bill and the charges remain interest free up to the credit card bill payment due date.

      Note that any cash rebates on the spending amounts will be calculated and given in the next credit card billing monthly cycle.

      After the credit card bill payment due date, there will be interest charges on the spending amounts if they remain unpaid.

      The credit cards in Australia have different benefits compared to those in Singapore. It's been over 2 years since we last used an Australian credit card but we used to have the ANZ Frequent Flyer credit card.

      Cheers,
      TFS

      Delete
  4. Nice blog site created.I have seen that other people have given their opinion about the using and benefits of credit cards.You have given the some important things that is really helpful for newcomers.


    Credit card payment processing

    ReplyDelete
  5. Spend more to save more is essentially what most credit cards promote. However, if 1 uses his cards wisely for daily essentials using Cash Back Credit Cards, one can slowly accumulate spend less (because of credit cards discounts and cash backs) to save more on daily esssentials.

    ReplyDelete
  6. Most credit cards promote spend more to save more and as long as one uses the right cash back credit cards for the daily essentials instead of on other unnecessary stuff, one can actually spend less and save more.

    ReplyDelete
  7. Not everyone will like the idea of using easy credit. But if you are responsible in paying the bills at the end of the month, you can gain a lot from all of the perks the card can give you!

    ReplyDelete