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Just Got Your First Credit Card? Here Are 7 Tips To Avoid Credit Card Debt In Singapore

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A credit card comes with the aura of having money galore at your fingertips. But if you don’t use your credit card responsibly, you’ll be tempted to make up to 100% more useless purchases than you would with cash. With the influence of social media and peer pressure, it is common for Singaporeans to splurge on luxury goods to keep up with the jones.

That can bury you in debt and ruin your credit score.

To avoid this, read the tips below. You’ll learn how to make the most of your credit card to enjoy the many perks that come with having one and to improve your credit score.

1. Work With A Budget

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A lot of people buy things they don’t actually afford when they have a credit card. Using cash is easy: it tells you the exact amount you can spare, so you have to stick to that sum, whether you’re paying for a dinner out or a new suit.

Credit cards don’t give you a realistic idea of how much money you have because you can postpone paying for your balance and because there are no immediate penalties.

To avoid falling in the trap of useless purchases, establish a budget. For instance, 60% of your budget can be allocated for necessary items you can’t live without, like paying your bills and food. 20% can go to things you don’t necessarily need, like new books or new clothes, and 20% for savings and paying your balance.

Of course, many people confuse things they need with things they want but don’t need, which makes them more likely to incur additional payments on their credit card.

2. Keep Track of Everything

After you’ve set up your budget, you can start spending your money. But that’s not the last step because you need to keep track of every purchase you make. Your credit card is likely to come with an app, so that will help you analyze your payments.

The app will help you stay disciplined and accountable, provided you’re not going over the limit you’ve set. If not, you can also download money tracking apps that are free on iOS and on Google Pay. Here are a few popular money tracking apps in Singapore:

  • Wally – Control your money seamlessly. The app shows daily spendings.
  • Spendee – The app that gets your money in shape. They use minimalist app layouts which are easy-to-use.
  • Household Account Book – A really cute money management app with lots of drawings and cartoons.
  • Monny – Simple, professional and fun money tracking app.

It’s easier to stay on budget if you activate automatic monthly payments for your bills. Make sure you have money in your account though, or otherwise you’ll have to pay some penalties. Paying your bills on time improves your credit score, provided you pay the full sum.

3. Pay Your Balance In Full

This step is easy to do if you’re working on a budget and keeping track of your payments. It’s also a good idea not to max out on your credit card, which makes it increasingly difficult to pay your balance in full.

Of course, all credit cards require a minimum monthly payment that covers only a part of your balance. People are tempted to make just the minimum payment because they believe they are saving money for more purchases. But instead of saving money, they are simply accruing more debt.

In the long run, this mindset will end up costing you more than making full, timely payments to your balance. Apart from avoiding interests that add to the balance you have to eventually pay at some point, diligent monthly payments improve your credit score.

For some people, they only realise how much credit card debt they are in until it is too late. Credit card interest rates are very high and are at an average of 25%. When it becomes too difficult to clear your credit card debt and with the ever-increasing stress from the high interest rates, a credit card consolidation loan might be your way out.

4. Read Your Billing Statement

Sure, your billing statement with all the transactions you’ve made sounds like a tedious way to spend the little free time you have, especially if you have already set up automatic monthly payments.

So why is this important? Your billing statement gives you a more accurate idea on how to plan for a better budget which helps you save more money in the long run, either for emergencies or for making a property purchase.

Additionally, reading bank statements is how you can spot unauthorized payments. It is possible for someone to use your credit card fraudulently if they hack your bank account and retrieve your credit card details. Most of these hackers don’t take out thousands of dollars from your credit card; instead, they make small-time purchases that are hard to notice.

These extra purchases add up in the long-run, though. You won’t be liable if you report unauthorized payments immediately, but you will be expected to cover for some of the amounts if you wait too long to make your report.

5. Use The Rewards System

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Most credit cards work with retailers that offer rewards in the form of points, mileage, money back or discounts. The more you use your credit card at these retailers, the more rewards you can get. Many would have heard of people accumulating KrisFlyer miles for their next vacation.

The point is to actually use the reward system to your advantage instead of hoarding useless discounts and points just for the sake of it.

Unfortunately, people are tempted to buy more unnecessary things just to get that satisfying dopamine release when you see more points added to your account.

The correct approach is to buy only the things you need from retailers that offer the best rewards and to use those rewards for further discounts and money-back options.

6. Steer Clear Of Fees

Credit cards come with certain fees, the most usual being the annual payments for managing the credit card. However, some fees are associated with poor credit card behaviour, and these fees you can avoid.

If you make timely payments to your balance, you won’t be required to pay a late fee. If you don’t ask for cash advances, you won’t have to pay the fee that comes with them.

It’s also wise to read and understand the terms and conditions that come with your credit card. The jargon is difficult to understand, but it can help you avoid additional fees. For instance, if you buy something from an overseas website, some credit cards charge an increased transaction fee. If you plan to make such purchases constantly, you need a credit card without fees for them.

7. Use The Mobile App

We’ve already explained how convenient the mobile app is for keeping track of your balance, payments and suspicious activity.

Credit card mobile apps keep you organized and accountable. They help you devise budgets and make plans. They improve your purchase behaviours so you can earn better credit scores, plus you can ultimately save more money and become a more financially responsible person.

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