There’s such a thing as having too many credit cards. But how do you know what’s too many?
When it comes to credit cards in Singapore, you can get too much of a good thing. All those discounts and deals are great, but you’re inviting trouble beyond a certain point.
Here’s how to tell if you own the right number of credit cards.
1. Use credit cards as a mode of payment, not a mode of credit
The interest rate on a credit card is a whopping 24% per annum. This makes it terrible for loans.
On the other hand, a credit card gives you discounts, air miles, and rewards when you charge purchases to them.
This means that, at all times, the credit card must be a mode of payment only: you should always pay it back in full, before any interest is incurred.
2. Use the right credit card for the right things
As a general guideline, two credit cards are enough for most people living in Singapore.
In most cases, the first credit card is a cashback card for general expenses like groceries and utilities, and the second should be for the biggest portion of retail spend.
For instance, if you spend most of your disposable income on restaurants, there should be a dining credit card in your wallet. If you spend more on travel, then the second credit card could be for air miles.
3. Divide and conquer
In general, one card will be a Visa card while the other will be a MasterCard. If one is not accepted, the other will be. Comfort taxis, for example, accept MasterCard but not Visa.
4. Three’s not always a crowd
It’s seldom necessary, but if you are good at tracking your finances and have more than one primary expense, you can use three or four credit cards to optimise your purchases even further.
For example, some motorists have a third credit card that is specifically for petrol.
Some of these cards can give you cashback in addition to existing discounts. Compare credit cards to find out which ones can save you money on your major everyday expenses.
5. So why not just have as many credit cards as possible?
Firstly, each credit card has its own billing cycle, which is activated from the moment the card is used.
If you have a dozen credit cards, you are liable to get confused and miss a cycle. This leads to penalties such as late fees.
Also, if you spread out your loans across 10 or more credit cards (again, we suggest you use credit cards only to pay for things, not for actual loans), it becomes easy to underestimate how much you owe.
For example, owing S$300 on 10 different credit cards makes you feel like you owe less, as opposed to one card with a S$3,000 debt.
People with a large number of credit cards may end up using just one or two of them. The other credit cards are wasted. Note that these extra cards are not “free” – they often have an annual fee, so don’t keep them if you’re not using them.
The final problem with having too many credit cards is that your credit score goes down, which will be to your detriment when you try to take out major loans, such as a home loan or education loan.
By Ryan Ong, SingSaver, April 2016
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