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Credit vs Debit: When Is The Right Time To Use Each Card?

What are the best situations to use debit and credit cards?

If you are living in Singapore, get ready to embrace the cashless movement. The push to go cashless is so real that even the hawkers are starting to offer cashless payment options like NETS, DBS PayLah! and other contactless payment methods (think Apple Pay, Mastercard Paypass & VISA Paywave).

As consumers, which type of cashless payment option will be the most beneficial to us? We’ll start by answering the most fundamental question of them all: What are the best situations to use debit and credit cards?

Wait A Minute. Aren’t Credit And Debit Cards The Same?

No, they aren’t. The way you pay at the cashier might be similar, but the fundamentals behind the two are different.

Debit Cards = Living Within Your Means

Debit cards are directly linked to your bank account. As such, you are only able to spend as much as your available bank balance. Whenever you make a purchase on your debit card, the amount will be deducted from your bank account immediately.

Credit Cards = Living On “Borrowed” Money

Credit cards, on the other hand, allow you to spend on “borrowed” money. Your bank extends some credit to you and you only have to pay back at the end of the month or billing cycle. You don’t have to pay any interest on the money you have spent if you pay back the full “borrowed” sum on time.

When Should You Use A Credit Card?

When guarding against unethical sellers

Since debit cards deduct transaction amounts immediately, this means that your money will be transferred into the hands of another person once you make a purchase. In the unfortunate event that you’re a victim of a scam, you will need to go through a series of administrative chores to retrieve your money, and this may include lodging a police report.

Unlike debit cards, payment from credit cards do not go to the seller’s pocket immediately. Credit card payments are usually settled by the bank at the end of the billing cycle. That means that it’s possible for you to call your bank to block a payment if necessary. Hence, credit cards offer better protection against fraud cases.

Creating more bang for your buck

Credit cards also offer different ways for you to get more value from your money.

1. Credit cards let you “buy more with less”

The first way is through cashbacks. If you spend a minimum amount on your credit card every month, you will be entitled to up to 10% cashback on your purchases. For example, the DBS Live Fresh Card allows you to get a maximum of 5% cashback from online purchases. (this could help you offset Singapore’s new ecommerce tax) To make the deal sweeter, new users now get an additional 5% cashback for the first six months of sign up!

2. Credit cards let you spend on essentials the smart way

The second advantage of spending on credit cards is the opportunity to earn rebates. Credit cards like POSB Everyday Card allows you to earn cash rebates from essential spending like telephone bills, utilities bill and even groceries. If you are a motorist, you might want to consider the DBS Esso Card. With the DBS Esso Card, you can save by getting 17% instant fuel rebate by pumping at Esso.

3. Credit cards take you closer to your travel goals

Apart from earning rebates, you can also get rewards just by charging your credit card. For example, for those who travel often, this could mean that every dollar spent on your credit card would be translated into air miles. These air miles could also be spent on travel websites like Agoda, Airbnb and Expedia! Since you will need to spend on essentials, why not spend it on your credit card that may help offset some of your travel expenses?

When Should You Use A Debit Card?

If you have a little “spending problem”

While credit cards might sound superior, there are still situations where a debit card might be a better option for you. For those of you who want to practice financial discipline, a debit card will be the better option. After all, it restricts you from spending what you don’t have.



If you tend to forget to pay your bills

Since credit cards do not deduct from your bank account directly, you will need to settle your credit card bill every month. While this might sound trivial, the consequences of missing the settling date can be drastic. Late payment charges and a high interest rate (could be up to 25%) will be incurred on a missed payment settlement.

If all you want is a convenient payment option

If you are getting a credit card just for contactless payments or online purchases, you might want to consider a debit card. This is because credit card charges an annual fee for you to maintain your card. While the fees can be waived, why not just get a debit card and avoid going through the fee waiver process? Moreover, credit cards come with a monthly credit limit. The credit that your bank extends to you is dependent on your monthly income, rather than your savings balance. It is also possible to get cashbacks when you use your debit card for cashless payments (read: you can get up to 10 per cent monthly cashback for a limited time period). Find out how here.

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