Credit cards are a wonderful means to get those amazing things you’ve always wanted to buy but couldn’t afford. Be it awe-inspiring gadgets ranging from smartphones and laptops to home appliances and sports equipment, these cards are actually potent tools that help you raise your standard of living. Spending has become so much more convenient and easy through the use of cards – for instance, if there is a potentially eventful social gathering that you need to attend and you’re somebody who lives from paycheck to paycheck, you can swipe your card even though you might not have any money in your bank account; or of there is an emergency flight booking that needs to be done, your card is certainly going to come in handy. While such is the case, the use of credit has literally surpassed the importance of savings and the conventional use of savings towards expenditure – emergency or planned.
What makes credit cards so dangerous?
Well, credit cards aren’t dangerous for people who are wise – they only become dangerous for people who use their credit impulsively. What must be understood about cards is that all purchases made are charged with interest – literally on a daily basis. The annual rate of interest for most cards in Singapore is in the range of 23% to 30%. However, this doesn’t mean that you pay interest on a yearly basis – you are charged an interest right from the time you make your first purchase.
It goes without saying that banks churn out huge revenue through your card interest alone. Moreover, besides the interest are a string of other hidden charges including late payment fees, overlimit fees, increased interests in case of default payments, heavy interests on cash advances, and more. Most customers end up paying hundreds, or even thousands of dollars in the form of hidden charges and penalties before without even realizing it.
These cards also have a huge weightage on credit-scores. Most banks use credit scores to assess the ability of customers to handle debt and predict the possibility of defaults. A bad credit score will result in a series of failed loan applications. In instances where credit scores are too bad, forget about getting your loan application approved, you won’t even see yourself being issued with a new card.
Using credit cards wisely
Although in Singapore it is not so difficult to apply credit card but it is a widely accepted fact among credit card advisors that using not more than 30% or 40% of your allocated credit limit is safe. Also, making sure that your credit spending for a given month does not exceed more than 40% of your monthly income is another aspect that represents wise usage of credit.
Statistics evidently point that it is the psychology of credit cards that makes them dangerous – mostly for people who get tempted by the amount of credit at their disposal. Using your debit card or savings to pay for your electronic gadget is a much better proposition than using your credit card and slipping into incessant debt.