Using Credit Cards

Credit cards, something which was exclusive to those high earners in the past (you may have heard of the term Gold Card, Silver Card) and a symbol of status, has now evolved to be something which everyone is able to get as long as you have a basic level of earning power. In fact, certain banks provide a very basic level of credit card to students. I remembered my first credit card when I was a university student had a monthly limit of $500. Of course, not all credit cards are made equal. Citigold requres 1 million cash in the bank, and the famous but elusive black cards you have only heard of but probably will never get are reserved for those with the highest earning and purchasing power.

Credit card works by offering a credit limit to you, in accordance to your official earning power, such as your job. For example, I may be granted a $8000 credit limit per month with a salary of $4000. That means that every month, I am able to spend $8000 on the card, regardless of how much money I have in the bank. What I spend will roll to the end of the billing cycle, where the credit card company will send me a statement giving me a breakdown and total of how much I spent, what is the minimum payment and the deadline for it.

Most credit card providers require at least a $50 payment or 3% of total outstanding balance, whichever higher. For example, if I spent $200 for the month, my minimum payment will be $50. If I spent $3000, then my minimum payment will be $90. They will tell you clearly how much you need to pay in the statement. Should you fail to pay even the minimum sum by the stipulated deadline, you will incur a penalty charge of perhaps $50 or $80. The charge differs for each provider. In many countries, the provider would be a bank which partners with one of the credit card companies, usually Mastercard, Visa or Unionpay to provide a credit card service. Your credit card would be issued by a particular bank, and your card would reflect the name of the bank and the credit card company.

There are 2 options when you receive your bill – to pay the minimum sum or to pay in full. If you pay only the minimum sum, you will have to pay the interest rates for the outstanding balance. In Singapore the interest is about 24% per year, rolled monthly. This means that if you have a $3000 bill, and you paid only $90, your outstanding $2910 will accumulate an interest of $2910 x 0.24 (interests) / 12 months = $58.20. This $58.20 of interests will be rolled over to the next month too where you have to pay interests on. You are paying interests for the interests of the outstanding payment. If you spent further in the second month, this also will be added to the outstanding payment which you have to pay.

The next option of course, is to pay in full. This is advisable, because you do not incur any penalty or interests as long as you pay in full. Not only that, you can also earn credit card benefits in terms of air miles, points or cashback depending on your credit card rebate type. Paying your bills in full every month will also help to grow and maintain your credit score. If we take it a step further, you can even generate interests on the money you should have paid on the spot but delayed it till the end of the month. For example, you bought a shoe at $80. Rather than paying on the spot, you use your credit card, and pay only at the end of the month. Your $80 could be put in some other financial instruments (eg crypto USDT savings) to generate daily interests. The amount earned may not be much, but when the bills stack up over the months, it will add up to a little something.

Of course, credit card spending is for the disciplined. Some people cannot control their spending and keep on buying. I remember someone telling me that they like to use cash, because when they spend, the action of coming up with the cash itself reminds them that they are spending their hard-earned money. When using credit card, the absence of cash and the idea of paying later makes the impact of their spending lesser. If not carefully controlled, they would be spending much more than they intended or expected.

There is also the debit card for those just starting out and do not want to get into the trap of spending too much. While credit cards allow you to ‘owe’ your spending and let it roll till the end of the billing cycle before asking for your payment, debit cards are directly linked to your bank account. You only spend what you have in the bank.

However, there are no rewards for using a debit card. You do not earn points, air miles or cash rebates. Basically it is a card loaded with whatever amount you have in your bank, so that when you do your shopping you do not need to carry too much cash around.

If you ask me, for the disciplined purchases, credit cards are still the most sensible thing to do. Companies like Visa, Mastercard, American Express, Diners etc charge a fee on the merchants whenever a customer use their cards to pay for a purchase. This cost is usually passed on to the customers. When customers use the credit card to pay, they get back a little of the fee in the form of rebates. If you use a credit card, you get some rebate back, no matter how small it is. But if you use a debit card or cash, you get nothing back.

As mentioned earlier, credit cards have different tiers. There are the common ones, and the ones which showed a higher status. All credit cards come with an annual fee. But for the common folks like you and me, generally we choose the somewhat basic level cards. Every year, we just need to call up the bank and request for a fee waiver. Generally they will waive it for you if you ask for it. However, for higher end credit cards, you will find it more difficult to waive. For example, the American Express Platinum Card would require spending above a certain undisclosed amount to qualify for a fee waiver. Even higher level cards do not allow to have their fees waived. That is because higher level cards often comes with more personalised services the higher you go, and for someone with that kind of earning power, paying just a bit extra for all these services and privileges is actually quite reasonable.

Customer service wise, naturally to say, the higher the level your card is, the better customer service you get. When I called one of the basic card’s hotline, I once had to wait for more than 1.5 hours just to get a human on the other end of the line to ask something about my basic card. However, when I call up the customer service hotline for a higher level card, I got through to a human very quickly. Right now I am using a American Express Platinum Card, but I still call them up at least once a year to waive off my annual fee and for any other ad-hoc queries.

Using a Amex platinum card is not a show of my wealth or status. I am still of at average wealth and I am still stuck at a job which I do not like. However there are certain perks to using this card. Firstly, as mentioned above, the customer service is of a much higher level. I simply save time and frustration when I need to get something clarified or done. Second, although at first look its rebate of 0.5% seems lesser than all other cards who give more cash rebates, points and air miles, Amex’s points do not have an expiry date nor does it have so many criteria to follow.

I remembered using card A for dining, card B for retail shopping, card C for grocery shopping and so on. On the surface it looked like I capitalised fully on each card’s benefits. However as my purchases are split over so many different cards, the rewards expired before I could accumulate to a certain level to redeem it. Now I just put all my purchases into that one card, get my annual fee waived off every year and enjoy the customer service when I needed it. Although the rebate points worth 0.5% seems slow to accumulate, they do not expire. Of course, one can argue that if used wisely, we still can get a return higher than 0.5%. Yes you can, but perhaps for me, the effort is simply not worth the returns. Lastly, I am at an advantage because I do business. I use my card quite often when doing my purchases for customers, and accumulate points and credit score in the process.

Used wisely, the credit card will be an additional small income for you. Perhaps one free coffee per month, or one free meal per month. Why not? You are already paying for all the merchant fees charged by the credit card companies to the merchants anyway. Get something back.

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