3 Pitfalls of Choosing the Wrong Credit Card

Get the Best Credit Cards in Singapore

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For many people, the convenience of not needing to carry a thick wallet filled with cash is often a good enough of a reason to have a credit card. Some others often just get whatever credit card their friends recommend, without really considering how such a card fits into their own unique set of needs. However, believe it or not, choosing the wrong credit card can easily cost you hundreds of dollars. A card that works well for your friend may not always work out well for you.

Mismatch of Rewards and Spending Habits

For example, let’s say your friends all use Citibank Cashback Credit Card, and recommended it to you as the best deal you could possibly get. Thinking your current set of credit cards is suboptimal, you get the Citibank Cashback Card. What you may not have realised when doing this, however, is that, while Citibank Cashback Card is easily considered one of the best cash back cards in Singapore, it is actually not that great unless you spend mostly on food, but not on other things like travel, entertainment or shopping. In other words, the “best” credit card for you really depends on how you spend your money.

For instance, Citibank Cashback card provides 8% cashback on all of your dining and grocery expenditures. However, for almost everything outside of these two spending areas, it only provides 0.25% of cash back. Therefore, if you are spending about S$600 per month on food, but S$1,400 on other things, it will only earn about S$55 of cash rebate for you (do note that you can earn a lot more if you have a car and purchase petrol). If you have a more diverse spending habit outside of dining and groceries, a card like OCBC 365 with a more diverse set of rewards could be more beneficial. For example, OCBC 365 card’s cashback program spans petrol, dining, groceries, online shopping and utilities. It’s also worth pointing out that OCBC 365 card waives its annual fee for anyone who spends S$10,000 on the card every year, a feature the other card lacks.

Expenditure CategoryCiti Cashback CardOCBC 365 Card

Miss Match of Spending Amount

How much you tend to spend every month also influences which card you should be using. For instance, UOB One Card, easily considered one of the best cashback cards in the country, requires a minimum spend of S$2,000 monthly to qualify for its S$300 of quarterly cashback (up to 5%). If you spend less than that even for 1 out of 3 consecutive months, you only receive S$100 of cashback or less. Spending S$2,000 for 2 months and S$1,950 for 1 month, for example, will yield you S$100 of cash back at a rate of 1.7%. Given that UOB One Card charges an annual fee of S$192.6 (waived for 1 year), you could do much better with a card like Standard Chartered Unlimited Cashback card, which provides 1.5% of cash rebate no matter how much you spend, and also automatically waives its annual fee for 2 years.

Rewards Credit Card Gone Bad

Another scenario in which an otherwise great credit card could be poisonous is when your spending power is not sufficient for the card’s reward system. UOB One Card, for one, doesn’t even give you anything if you spend less than S$500 on the card per month. Even worse, if you spend out of your budget for too long just to earn rewards, it could lead to your financial ruin. For example, Citi PremierMiles Card, though highly rewarding, requires you to spend S$10,000 in your first 3 months of getting the card to get 15,000 bonus miles. Given that credit card debt carries an average interest rate of 25% in Singapore, spending more than you can repay can lead to a substantial amount of credit card debt that will cost you dearly. Therefore, you always have to be very familiar with the minimum spending requirements of the credit card that you are using, and manage it to a level that you can easily repay in full at the end of every monthly billing cycle. A rewards credit card is only good for you so long as your budget can handle it; both of these cards can be phenomenally rewarding so long as you don't spend outside of your means.

Parting Thoughts

Contrary to what many people believe, there is no single “best” credit card. In fact, even the few that are considered the best are not ideal for anyone. When you are choosing your next credit card, be sure that it fits very well with your monthly budget and spending pattern. You should always be spending within your means. Otherwise, you run the risk of racking up a credit card debt that will cost you a significant amount regardless of how much cash back or miles you are earning on the card.

Duckju Kang

Duckju (DJ) is the founder and CEO of ValueChampion. He covers the financial services industry, consumer finance products, budgeting and investing. He previously worked at hedge funds such as Tiger Asia and Cadian Capital. He graduated from Yale University with a Bachelor of Arts degree in Economics with honors, Magna Cum Laude. His work has been featured on major international media such as CNBC, Bloomberg, CNN, the Straits Times, Today and more.

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