Three Credit Card Mistakes | Bad Credit Card Debts | Singapore

Credit Cards

Credit Card is a great power. But always remember with great power comes great responsibility. You must use credit cards wisely given the convenience that comes along with credit cards. Moreover, credit cards usually have a credit limit that is 3 to 4 times your monthly income. It can really give you the power to own anything and it’s not uncommon to run into bad debts.  In this blog, we tell you about three credit card mistakes you can avoid.

When you finally own a credit card, it may sometimes create an illusion for you. The feeling of making richer than you actually are. While on one hand there are discounts, benefits, cashback, offers, and other perks. On the other hand, a credit card also comes with the temptation of overspending and having one of the most expensive debts.

Avoid these three credit card mistakes:

Making Big Ticket Purchase Beyond your Capacity

With a credit card in hand, it is really easy to get carried away and swipe left and right. Just the convenience of paying later and buying first makes it even more difficult to make the best judgment. You can easily buy merchandise or products worth hundreds of dollars and not even realize the trap you are getting into.

If you want to buy expensive things, make sure you check your budget first. Make the big-ticket purchase only if your budget allows you to. Or you know for sure you can pay off the credit amount later. A run through your bank balance will give you a clear idea of what your finances look like.

Whether is it an expensive holiday, or your recurring education fees, or any major down payments like EMI’s for a car or a new home, etc. You need to be sure you have the amount in your account first and then take the credit.

Thinking of Credit as Money You Own

If you always reach out for your credit card whenever you have to pay for something, then it is the biggest red flag. Although there is nothing wrong with using a credit card for daily essentials especially when it’s a cashback credit card. However, be mindful of the expenses you make. Because a credit card is only allowing you credit, it is not the money you own.

What you can do is strive to have a set budget. Decide a budget even for your credit card spending and try to keep your expenses limited and simple. Also, keep a track of your total expenditure.

Another good financial habit is to pay your bills fully as credit cards levy heavy interest on outstanding amounts. And this outstanding amount can snowball into huge debts in no time.

High Credit Utilisation Ratio

If you have done the above two mistakes you are bound to have a high credit utilization ratio. High Credit Utilisation Ratio refers to the ratio of your credit card balances in comparison to your credit limits.  For instance, if your credit card has a credit limit of $50,000 and you use $38,000 of it to purchase designer footwear, your credit utilization ratio would be 75%.

You must be aware that the higher the credit utilization ratio, the lower your credit ratings as the credit bureau is going to take this into account. Low credit scores will hamper your eligibility to get loans, etc. for more essential things in life like a house. We recommend you try to keep your credit utilization ratio below 30%. Now you know about the common three credit card mistakes to avoid.

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