Is It Better to Pay by Credit Card or Debit Card?

credit card debit card

Most Singaporeans’ first experience with online shopping happens with the help of a debit card. This has nothing to do with the wonderfulness of debit cards, but rather the fact that a 17-year-old who wants to buy games on Steam is too young and poor to have her own credit card.

For working adults whose incomes qualify them for credit cards, however, there is no reason to continue using your debit card—and no, this has nothing to do with status.

While both modes of payment have their benefits, those of credit cards tend to be much stronger. Here are the key differences so you can decide what’s best for you.


Credit cards offer more protection than debit cards

Swiping your credit card feels the same as swiping your debit card, except for people whose self-esteem is built on their black card status.

But there is one big difference between the two modes of payment. When you pay by credit card, the bank pays for you first, and you only pay them back when you receive your bill.

If your credit card is stolen and some guy goes on a spending spree, or you get into a dispute with the merchant, you can file a dispute on your credit card. If accepted, you don’t have to pay the disputed charges.

When you pay by debit card, on the other hand, the money is taken out of your account immediately. If some guy spends your life savings using your debit card, tough luck trying to get it back.

Both credit and debit card holders can be victims of identity theft, but credit card holders won’t be as inconvenienced as debit card holders.


Debit cards are usually free; credit cards can be free, but only if you use them wisely

Debit cards are usually free to use. After all, the only thing that card is doing is saving you a trip to the ATM. Do note, however, that you still have to pay currency conversation and/or transaction fees for overseas transactions or online shopping just as you do for credit cards.

That’s not to say that credit cards are expensive to use. They can be free to use too, if you pay your bills in full every month.

Credit cards start to get expensive only if you pay your bills late and/or fail to pay them in full. The interest on any unpaid amounts you roll over to the next month is usually around 25%. Thanks to compounding interest, that means forgetting to pay your bills for a few months can make the initial sum rise dramatically. You also get slapped with late payment charges if you pay your bills late, usually in the $50 range.

One troublesome thing about credit cards is that they usually try to charge you an annual fee each year. Getting it waived seems simple enough in theory—just call them and ask politely, or cancel the card if they refuse. But in reality it’s quite a pain as their helplines aren’t always easy to get through to. At least you only have to do it once a year.


Credit cards come with perks and benefits, while debit cards hardly have any

Debit cards offer very few benefits compared to credit cards, and the ones they do are usually quite pathetic.

The benefits offered by credit cards, on the other hand, are actually the main reason you should even sign up for them. Heck, some cards even get you cash upfront when you sign up for them.

Benefits include cash rebates, frequent flyer miles and rewards points you can exchange for vouchers and freebies.

For instance, in addition to frequent flyer miles, The Amex KrisFlyer Ascend card also gives you four complimentary SATS lounge passes and a free stay with Millennium Hotel and Resorts every year.

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Credit cards affect your credit score, debit cards don’t

Your credit card can ruin or build your credit score, depending on what kind of user you are. Consistently pay all your bills in full by Interbank GIRO every month and you’ll slowly build your credit score, making it easier for you to get a home loan when you finally need to.

On the other hand, if you’re not religious about paying your bills on time or you get stuck with a balance you have difficulty paying off, you’ll do the opposite.

Debit cards have no effect on your credit score. This isn’t necessarily a good thing, because if you have no credit rating at all, it’s going to be harder for you to get a loan as banks won’t know how reliable you are.

Why does this matter? Your credit score can not only make it easier for you get approval for a loan but also affect how much the bank is willing to lend you.


Credit cards let you spend more money than you have, while debit cards only let you spend what you have in the bank

As a rule, you should avoid making charges on your credit card that you wouldn’t using your debit card. If you don’t have that $1,000 in your bank account right now, you probably shouldn’t be swiping away $1,000 with your credit card, either.

That’s why we’re hesitant to call the credit limit an advantage. While a debit card holder with $500 in his account can spend a maximum of $500, a credit card holder with $500 in account can pay much more than that with his card, up to his credit limit. That’s also how people get into trouble and land themselves in credit card debt.

Your credit limit usually is usually 2 to 3 times your monthly income, depending on your credit score, the bank and how many cards you already have. If you earn $4,500, you may be given a $13,500 credit limit, meaning that even if you have $0 in your bank account you can spend up to $13,500 on your card.

For those who pay their bills in full every month without difficulty, the credit limit is actually irrelevant.

However, in the event that you suffer from a one-time catastrophic emergency, your credit card can save you temporarily. Even then, however, it’s better to have an emergency fund you can dip into than have to rely on high interest credit.

A sharp knife that cuts really well is one thing when placed in the hands of a master chef, and quite another when handed to a serial killer. Credit cards can come with lots of perks and advantages, but only if you use them in the right way.

Do you prefer to pay by credit or debit card? Tell us in the comments!