Side Views

Credit by plastic — Kartik Taneja

December 17, 2011

DEC 17 — Credit cards are like deodorant. Hold on to your snotty comment and read on. Not everybody needs them but everybody could do with them. They all fundamentally function much the same way but, every year, the companies producing them come out with new versions. Oh and one other thing: they are absolutely vital to the economy — they provide credit. It is difficult to fathom the consequences if the S$35 billion (RM84 billion) that Singapore consumers are likely to spend on their credit cards is taken away from our economy.

It is not uncommon to go to a restaurant and see someone pull out a thick wad of credit cards and ask which one gives them a discount. According to the Credit Bureau of Singapore, 41 per cent of Singaporean card customers have cards from five or more banks. And a little more than three per cent have cards from 10 or 11 card issuers. We really love a good deal, don’t we?

According to the Monetary Authority of Singapore, the total amount of money owed to card companies in Singapore as of September is S$7.37 billion. On the surface, this equates to 3.3 per cent of total GDP last year, on par with most developed economies.

However, the difficulty faced by European economies like Greece and Italy in paying the money they have borrowed is illustrative of some of the dangers of easy credit and profligate behaviour. This time of the year, more than ever, it is absolutely crucial to watch our spending and not bite off more than we can chew.

The No. 1 mistake that everyone makes is the most basic — not keeping track of spending. It is also the most difficult to do.

1. Keep track: In our consumer research, we have found that individuals consistently underestimate not only how much they are likely to spend but also how much they think they have spent — sometimes by as much as 100 per cent. Keeping track of how much you spend now may help you stick to your budget and avoid a headache next month.

2. Consolidate: While having many cards may give you discounts at different places, consider consolidating spending on two to three cards. This may help you keep track of your spending and limit multiple payment deadlines. It also allows you to enjoy rewards that you may miss out on if you spread your spending over many cards.

3. Avoid paying late: Consolidating also helps you stay the course in remembering to pay your card bills on time. You do not have to worry about late charges and interest payments on your cards and the hassles that come with that. Savings on your credit card bill can also be maximised by utilising cashback features on your cards.

4. Look a gift horse in the mouth: During the festive season, special offers by card issuers are aplenty. Just make sure you understand what you are getting into. Does that payment holiday also mean you will not be charged interest? Do you need to do anything additional to qualify for that promotion? Make sure you do not end up paying more money to qualify than you save.

5. Avoid paying just the minimum payment due on your bill: Okay, so you did not listen. You have overspent and you need to roll over a balance. Try to make more than the minimum payments due to pay off your balances as soon as you can. Or plan your payments by calling your bank and converting your balance into an instalment plan — it will help you plan your payment and save you interest.

Follow these rules when spending this festive season and you would surely have a Merry Christmas and an even better 2012! — Today

* Kartik Taneja is the head of unsecured lending (Singapore and Southeast Asia) at Standard Chartered Bank.

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.