Sometimes, I hear people saying that they want to cut their credit card and be debt free. I feel it hilarious because your credit card doesn’t trap you into debt, your spending patterns do. Credit is like a knife in the kitchen, it is essential to your daily living, though it may hurt you occasionally.

Personally, I take my credit line very seriously. That is why when a bank refused to increase my credit limit, I want to know why. In fact, one of the biggest credit mistakes one can make is to cut all your credit cards, because it can be a vital helpline when you need cash in an emergency.

For example, last December, I missed my flight from Taiwan back to Singapore, and I must fork out $2,500 at the airport to reschedule the ticket and pay for my accommodation. It was the piece of plastic that saved my day.

When it comes to borrowing money, you have another option which is a personal loan.

Both financial products have their own pros and cons. This article will give you a quick overview of the differences between them and suggestions to help you assess your overall credit situation before opting for either of the two options.

When to use a credit card

Singaporeans are spoilt for choices, the market is so competitive that you are awarded handsomely to simply use a credit card for payment. For example:

  • Everyday shopping
  • Online transactions (local and overseas)
  • Retail purchases that earn you cash back, reward points, air miles, or cash rebate
  • Travel-related payments
  • Recurring bills
  • Contactless payments
  • Deposit for hospital expenses if you don’t have a letter of guarantee

When to use a personal loan

A personal loan is generally used for a larger amount with a specific purpose, such as

  • Medical emergencies
  • Wedding expenses
  • Emergency situation in a family
  • Educational expenses
  • Relocation
  • Home renovation expenses

Factors to consider

Approval time

When compared to term loans, the approval time for a card is faster. Also, fewer documents are required for a card approval. But I advocate that you should always have some credit lines to standby because the bank doesn’t like to give you the credit when you initiate the request.

Credit score

Each of us has a credit score. Generally, a personal loan will have a lesser impact on your credit score in comparison to a credit card. This is because on a term loan your repayments are fixed and your interest rates are lower. Hence, chances of default are lesser.

On the other hand, if you end up using your card beyond your credit limit and don’t settle your dues within the stipulated time, your credit score will drastically go down.


If you can fully settle your credit card bill every month, you will not only be able to save on paying interest but also stand a chance to be rewarded upon making qualifying transactions. For example, Cards like BOC Shop! Card, OCBC 365 Card offer very good cash back and other cards offer incentives such as discounts, offers, miles, and more.

With respect to personal loans, your benefits are limited, but you enjoy a much lower interest rate.


When you opt for a card, paying for your online transactions (local and overseas) is easy and hassle-free. You can also pay your monthly recurring bills using the auto-debit option and lessen the risk of missing your payments. Also, a primary applicant can apply for a supplementary card for someone who can’t own a card on their own. You can use a card until the time you decide to cancel it.

On the contrary, a personal loan is a better option when you need lump sum money for a specific reason. For example, I took a Renovation loan for my house’s renovation. It is not that I don’t have the cash, but I’d rather invest the money elsewhere for a potentially higher return than the interest rate. I only need to repay it in 2 years’ time.


You need to take note that when you intend to pre-close a term loan, you’ll end up paying a penalty. Mostly, financial institutions don’t encourage you to pay what is more than your fixed monthly loan instalment amount.

However, with respect to a card, it works differently. You can choose to pay any amount and even pre-fund your credit limit.

How to choose

There are a few questions you need to ask yourself before you opt for a personal loan or a credit card. Try to get ask yourself these questions:

Why am I borrowing?

If you’re in need of a lump sum amount to make a big purchase, a personal loan is a suitable option for you. In case you’re keen on continued access to credit, a card will be more suitable for you.

How much do I need to borrow?

Generally, a personal loan offers you a higher amount in comparison to a credit card. A personal loan is recommended for larger purchases whereas a credit card is suitable for monthly expenses.

How do I repay?

With a credit card, your repayments will be based on how much you spend. However, with a personal loan, your repayment period will have a fixed end-date. If you’re someone who prefers a repayment schedule that is structured, it’s worth considering a personal loan.

However, if you think you’ll not be tempted with a credit line and you’ll make your repayments on time, you might want to consider a credit card.

To summarise…

I want to emphasize the importance of maintaining a personal credit facility because you even need it.

Ideally, a credit card should be used for small purchases when you’re confident about repaying in a specific period. You should consider a term loan when you’re keen on making a big-ticket item.

Making full payment for a big purchase doesn’t always mean you are prudent. You should be aware of the opportunity cost and evaluate where you can better deploy the money to keep up a good cash flow for yourself.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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