4 Reasons Why You Should Use Credit Cards, and 3 Tips to Protect Yourself From Its Downside
When it comes to credit cards, you would probably get different feedback and advices from different people. Some would steer clear of it altogether, while others can’t live without it. Simply put, you are either for, or against the idea. For me, I personally feel that credit cards can be a scary thing if abused, but if you use it correctly, it will be the best tool a consumer can get.
Before we move onto the pros & cons of credit cards, let us first understand what they are. If we search on Wikipedia, you will see that,
“A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder’s promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.”
What it means is that you purchase products or services by having your bank pay for it first and then subsequently send you the bill of the items you purchased. This usually happens on a monthly basis, and any unsettled amount of your bill will be carried forward to the next month at a steep interest rate (usually at 24% per annum). It is because of this steep interest rate that makes many people stay clear of credit cards. Putting it into perspective, 24% per annum is about 2% per month. If you owe the bank $1000 in January 2012, that amount would snowball to $1268.25 when we come to January 2013. If left unchecked, credit card debts can be very damaging to your financial health.
However, in order for banks to attract consumers to use their credit cards, they usually come up with very attractive features that you should take advantage of. These features can be broadly classified into the below categories:
Reason #1: Discounts/Offers at Participating Merchants
Banks often strike deals with a wide range of merchants to offer discounts or special offers or gifts when a consumer pays for the purchase using a credit card issued by the bank. For example, you could have 10% discount when dining out if you pay via Citibank Credit Cards, or a free travel luggage bag if you pay via POSB Credit Cards for your NATAS travel deal. Thus when making any purchases, you should always ask if they have any credit card discounts or offers!
Reason #2: Cash Rebates
Cash rebates usually come in two forms; when you purchase at participating merchants for selected items, or a general form of cash rebate for all purchases regardless of merchants. There are many variations in the market currently, but they all perform the same way; giving you back (in cash) a percentage of your purchase cost. This amount will then be used to offset your next credit card bill. In a way, this functions the same way as giving you a discount on your purchase price. A popular example of a cash rebate credit card is the Standard Chartered Manhattan Card that gives you up to 5% cash rebates!
Reason #3: Sign Up Bonus
Get a bonus just by siging up! This could be in the form of free gifts, or even better still, cash rebates! For example, Standard Chartered is giving away $80 cash rebates when you sign up for one of their credit cards!
Reason #4: Earn Points / Flyer Miles
If you prefer the idea of redeeming free gifts or vouchers, there are cards that allows you to earn points for each dollar that you spend. These points can then be used to exchange for selected items, or even air plane tickets in the case of flyer miles points. An example would be the Citi PremierMiles Card.
If you are really serious about maximising your dollar, then you should consider how you can make full use of credit cards in your daily purchases. If you utilise your credit cards to their full potential, you would be making purchases at great discounts together with alot more other fringe benefits!
However, before you start shopping with your credit cards, here are some tips to protect you from the downside of using credit cards:
Tip #1: Waive Annual Fees
Credit cards are financial products, and while they usually come with one/two/three year annual fee waiver, they are ultimately not free. After the fee waiver period is up, banks will not tell you that they have started billing you for the annual fee. They will just include it in one of your monthly bill statements. This is why you should always check your bill to make sure you are not billed unnecessarily. Call up your bank if you find that you are billed, and ask for a waiver of the annual fee. The customer service officer will normally waive it for you, but if they don’t, you can either threaten to cancel and see if they succumb to your threats, or pay for the annual fee if you find the card to be more beneficial to you than the cost of the annual fee.
Tip #2: Pay your Bills on Time
This is the #1 rule when using credit cards. Always, always pay your bills on time. While you have the option of paying only the minimum amount of $50 each time, you should always opt to pay your bills in full. Any unsettled amount will be charged at an interest rate of 24% per annum. This is a HUGE amount, and is the reason why people stay clear of credit cards. If you do not have the discipline to spend within your means, then you should not use credit cards. To make sure you don’t forget, you can opt to pay your bills automatically via GIRO.
Tip #3: Check your Bill Statements
Once every month, you will be issued your credit card bill statement, listing down all the items you have purchased in the last month. Make sure you read through every item that is billed to you, and call the bank immediately if you notice anything suspicious. Credit card frauds are getting common nowadays, and you could easily find yourself in trouble if you are not careful.
After reading the above, I hope you come to understand that when used properly, credit cards can offer you great deals with no downside. Its free money. Why not use it? Do you use credit cards? What are your thoughts?
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