What is the one thing most Singaporeans do upon getting their 1st job? A good guess would be a credit card, or cards. Why not? It is free (you probably get some cash rebate as I overheard a salesman saying “do you want a free $80?”), allow you to enjoy exclusive benefits and more importantly, enable you to spend beyond your means.
Credit Cards are an awesome invention, I will agree on that. They allow for cashless transaction in many parts of our world. If credit card companies have their way, money-changers occupying worthless space in shopping malls will be transformed into something more useful such as a shoe shop for ladies to use their credit cards on.
There is also the security aspect of a credit card which is frequently overlooked. Would you rather travel through countries with high crime rate with your stack of enticing US Dollars and risk being robbed or with your ‘universally accepted’ Visa Card? Sure people complain of credit card fraud all the time and it is an area of concern. Nonetheless, I think most people would still rather be faced with a credit card hacker than a robber holding them at gunpoint.
Additional benefits of a credit card aside from the convenience of payment would include the various perks that a credit card can offer. These include 0% interest free instalment payment (and if you are not careful, this is usually the first step to a lifetime of overspending) and discounts at participating merchants, among others. If used wisely, a credit card is certainly a useful item to have in your wallet.
If credit cards are so good, why is it that banks need to employ so many sales people to peddle the streets of Singapore convincing people to sign up for it? To understand this, we need to know the business model of credit cards.
There are two main ways a bank earns from a credit card. Firstly, they earn a commission from each transaction that takes place. Each time you use your credit card to purchase an item, you appoint the bank to act as your payment broker. This cost is invisible to you since it is the merchant who incurs it. In Singapore, price discrimination is forbidden so a merchant cannot charge you a higher price for choosing to pay by credit card, unless you are at Sim Lim Square.
Another way banks generate their revenue is by charging a high interest for users who roll over their payment. At 2% per month, this clearly is a bad deal for consumer. As such, we strongly encourage you to never fall for the temptation of paying the minimum sum and rolling over the remaining amount. It is an interest that most of us can ill afford.
Banks are profit-orientated entities. If they are giving $80 cash rebate for new sign ups and the additional $23 for the sales person who convinced you, they are definitely making the money elsewhere.
Some dirty tricks include tagging along additional ‘services’ during the process of applying for the credit card. For example, a sales person may conveniently signed you up for a personal credit line that you actually don’t need, and without your knowledge, during the credit card application process. Most people don’t realize it because these credit lines are typically free for the 1st two years, after which, the bank will then charge you an annual fee for it even if you didn’t use the credit facility at all. Or even worst, not even realized you had one to begin with.
To satisfy your curiosity, the annual rate is $60 for HSBC Personal Line of Credit. Advantages of the credit line include “Low Monthly Repayment as Little as 3%” (which means you are going to incur a huge interest if you are dumb enough to roll over 97% of your spendings) and “Extra Cash of Up to $100,000” (overspending, here I come!).
The worst part about these credit cards and personal credit line is the contrast in difficulty between applying for them and subsequently cancelling them upon the realization that you have signed up for something you do not need. You would think that to apply for a credit card or personal credit line would be harder than performing a cancellation, but the opposite is actually true.
For example, to apply for a POSB Every Card, you only need to click on a link and you will be guided through the rest of the application process. We can even provide you with the link! (Where is our $23 commission?)
(Extracted from the POSB Website)
“Please write to us. There’s no need to give a reason but please include your card account number & signature so we can cancel it. Our address is:
DBS Cards Orchard Road P.O. Box 360 Singapore 912312
For security reasons, please cut each card in half and dispose of them straight away. If there are outstanding balances remaining, your monthly statement will continue to be sent to you until full payment has been made”.
Incredible isn’t it? That in our fast paced, technology driven society one actually have to write in via snail mail to cancel his/her credit card! In fact notice there isn’t even any format provided (Do I hand write the letter? Who do I address it to? Will a white A4 piece of paper with the account number & signature suffice? Is it so difficult for the bank to provide a cancellation form?).
We are not here to bash credit card. It is definitely a great payment solution as compared to carrying chunk of cash around. In fact, we are great supporters of abusing credit as you can read in a previous article written. What we want to do is to highlight some of the unseen pitfalls surrounding credit cards in the hopes that you will avoid them.
As always, we love to hear from our readers on their views so feel free to drop us a comment! And do like us on Facebook and share the article with your friends if you find it useful.
Royalty-free photo from Getty Images. Used with appreciation.
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Savings & Spending