Credit cards give you access to money that isn’t yours. It’s the same as borrowing money, except without the crying and impassioned pleading (that part comes later). Debit cards just save you from standing in long ATM queues; it’s access to your own money, with the occasional perk. But which of the two should you be packing?
The Convenience of Plastic
Living without a debit or credit card is like cycling to work: you get to outwardly boast how healthy you are, and inwardly curse at the inconvenience.
So say you’re tired of not being able to shop online. Of having to borrow a card just to download apps, even the free ones. Of making more trips to the ATM than an incontinent cat to a litter box. Between debit and credit cards, which form of plastic should you be considering?
Credit cards let you buy up to your credit limit. Said limit varies based on your income, credit history, and promotional gimmickry. Assuming you have good credit, the limit is usually at least twice your income. Most credit cards go way higher than that. It’s also possible to write to your bank and ask for a higher credit limit, which they may approve.
Your credit card is like a disgruntled loan officer on retirement day. His criteria for approving your loan is “whatever”. Count on at least doubling your purchasing power, as a single swipe nets you shoes, clothes, and fancy iThings.
Debit cards, on the other hand, waver between hindering your buying power, or just having no effect. These cards have a daily limit on the transactions you can make, typically from $2000 – $5000. If you have more in your account, you still can’t use it. If you have less than the daily limit, a debit card has no effect on your purchasing power. When you swipe it the card just laughs.
Rewards and Discounts
Credit and debit cards both have these. But for the most part, a debit card won’t nab you the sizable discounts and freebies that a credit card will. The rewards of debit cards tend to be small cash rebates (often under one percent). You may also find fidgety little bonuses, such as VIP parking at certain malls, or a dollar off your next burger.
Visit MoneySmart, which has aggregated all the popular Singapore credit cards from all the banks to help you figure out which card would be best for you.
Qualifying Criteria for Credit & Debit Cards
Credit cards require you to meet certain criteria. In Singapore, most credit cards require that the applicant have an income of at least $2,000 a month. Prior conditions, such as bankruptcy, may also disqualify the applicant. Next time you want to ward off credit card promoters, just tell them you have no income. It’ll drive them off faster than mace.
To get a debit card, all you need is a bank account. In fact, most banks issue ATM cards that double as debit cards, so you get one automatically. Otherwise, it’s a simple case of going up to the counter and asking for one; you might even get it on the spot.
Fees and Interest Rates
Most debit cards have no fees. The operative word being “most”. Some debit cards may charge a transaction fee, especially if you’re using them in another country. You can also set up your debit card with an overdraft option: that means it starts drawing from another bank account once the current one is empty. This may have a fee attached to it, depending on your bank.
Credit cards have a whole host of fees, from late payment fees to annual fees. Credit cards also charge interest.
If your card gets stolen, or you get ripped off, you’re better off if you used a credit card.
A debit card approves transactions immediately, whereas a credit card gives you time to block payment. This means credit cards are great if you were sold defective products, got scammed, or bought something from the bottom floors of Sim Lim Square (but I repeat myself). In such cases, it’s a simple matter to call the bank and block the payment. With a debit card though, you’ve put the money in the merchant’s pocket. You won’t be getting it back without a police report.
Credit cards also come with a liability limit. That means when someone buys half of Orchard Road with your stolen Visa, you won’t end up paying the full cost. You just pay the liability. Debit cards only offer protection in the form of the daily limit.
Some people can’t be trusted with credit cards. If you’re a parent, for example, giving your teenager a credit card is slightly more dangerous than putting all your money in a wooden hut, and then dropping a flamethrower and a six-pack in his hands. Getting him a debit card, however, will make his life easier without bankrupting you.
Other times, we know our own weaknesses. I don’t allow myself near bookstores on payday, and I tip their staff to deliver running tackles when I walk toward them with a credit card. If you can’t control your spending, stick with a debit card!
Credit Card Arbitrage
Do you use a credit or debit card? Let us know!