How to use a credit card to your advantage
If you’ve only got a minute,
- Credit cards can be used to your advantage but only if you stay disciplined in how you use them.
- The advantages of credit cards can only be realised when you pay each bill in full and on time..
- If you have difficulty choosing which credit cards to sign up for, it helps to pick one that matches your life stage and one optimised to suit your spending habits.
There’s a wide variety of credit cards out there, each with its own unique features and benefits to its users. However, for all their positives, credit cards get a bad reputation for being a gateway to debt and uncontrolled spending.
There’s some truth to this as studies have shown that the willingness to make a purchase is doubled with the availability to use credit.
In many ways, credit cards share some similarities with the increasingly popular Buy Now Pay Later schemes, where the ease of being able to make purchases without taking an immediate hit on your bank balances and having an interest-free repayment period, can result in careless spending.
That said, it is easy to jump to conclusions that these pieces of plastic should be avoided at all costs. In fact, credit cards can be used to your advantage but only if you stay disciplined in how you use them.
Here’s some tips you should aim to stick with when using credit cards:
- Avoid rolling over credit card balances (Aim to pay each bill in full)
- Pay bills on time and within the interest-free period – usually 20-25 days from the date of bill
- Be on top of tracking your credit card expenses
- Spend within your means!
4 Credit Card strategies to consider
If you are disciplined in your spending, employing the right strategies can put you in a position to make the most of your credit card, and take advantage of the full range of benefits it has to offer. This includes discounts with credit card partners, cashback for spending and reward points.
By using the right strategies, you can, for example, maximise the amount of cashback you receive each month. If you are focused on reward points, you might prefer to make the most of your spending to redeem gifts or collect miles to redeem airline tickets for a much-needed holiday.
Here are some common strategies to consider:
Pick a credit card that matches your life stage
There’s a wide variety of credit cards in the market, each with their own sets of pros and cons. With so many options, it can be challenging to decide which cards to get.
If you’re feeling overwhelmed by the variety, a good rule of thumb to adopt is to narrow your search to selecting a credit card that matches your life stage.
Students might want to focus on getting a card with no annual fees or one with a fee waiver like the DBS Live Fresh Student Card. This keeps the “running costs” of holding a credit card to a minimum. Many student cards do not have a minimum spend either, meaning you can benefit from cashback even if you spend little.
As student credit cards usually have a low credit limit ($500 per month for the DBS Live Fresh Student Card), they actually serve as a good platform to train your ability to manage your spending.
For first jobbers, some of the same principles hold. If you are just starting out in your career, your main expenses are likely to be in spending on food, transport, and entertainment. As such, selecting a card that provides you the best cashback in these spending categories or the best reward points or miles, might be the best option.
Choose your cards according to your spending
Whether you’re a student, a young working adult or are married with children, tracking and tabulating of monthly expenses gives you a good idea of your spending habits and patterns. That way, you will know exactly where your money is going, and what you should be cutting back on. Using a financial planning tool like DBS NAV Planner allows you to do so efficiently.
Once you have a clear idea of how much you are spending and which segments (i.e Groceries, Transport) you spend the most on, you can then list down the credit cards can provide the best benefits to you such as a higher rate of cashback, higher reward points or a better miles conversion rate.
If you’re someone who spends more than $800 a month, mostly on groceries, petrol, utilities, and telecommunications bills, then the POSB Everyday Card might be a suitable choice.
However, this would not apply to an individual who spends less than the minimum spending amount of $800 for the POSB Everyday Card to maximise the cashback benefits of the card.
Instead, he/she can consider signing up for the DBS Live Fresh Card, which only requires a minimum monthly spend of $600 in order to receive up to 5% cashback for online purchases and Visa contactless transactions. With the DBS Live Fresh Card, users are also able to receive an additional 5% cashback on selected eco-eateries, retailers & transport services.
Cap it at 2 or 3
In life and investing, we are often told not to “put all your eggs in one basket,” so that we do not concentrate all our efforts into a single outcome or effort. In other words, we should diversify our efforts and investments.
However, the same can’t really be said about credit cards. Consolidating your spending into two to three cards can be ideal strategy for you to maximise your cashback, accumulate points and miles quicker. You can do this by apportioning how much to charge to each card per month in order to hit the cap limits for cashback, points or miles each month.
In other words, having different types of credit cards can allows you to earn the maximum available benefits on each credit card purchase you make.
That said, do remember to pay your credit balances on time to prevent racking up on late payment charges and massive interest over time.
Of course, in order for this to work, you have to be able to pay your bills in full, and on time. Making a single bill payment late or paying the minimum can rack up late payment and interest charges which can cancel out the benefits of cashback and rewards.
Taking advantage of credit card promotions
“Good things come to those who wait” applies among other things, to those biding their time to sign up for credit cards during periods when welcome bonuses are advertised.
Such bonuses, which are most commonly seen with rewards and miles cards, require new sign ups to charge $5,000-$7,000 on the new credit card within the first three months in order to earn the bonus.
While this is a relatively high amount to charge to a credit card, it actually isn’t difficult to do so, if you are expecting to make a series of large purchases over a short period of time.
In fact, this is a common strategy employed by individuals or couples who are purchasing appliances for their new home.
These sign-up offers are an easy way to earn extra rewards, whether its cash back, points or miles for flights!
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.