Articles online saying debit cards are a better choice compared to credit cards are just plain wrong. To put it simply: if both are available to you, there is really no good reason why you should choose a debit card over a credit card.
First, let’s get the common benefits of both debit and credit cards out of the way. All cashless, card-based transactions allow for the convenience of transactions in many parts of our world, including the world wide web. Every card has their own perks and benefits, such as cashbacks, airline miles or discounts at participating merchants, among others. When used wisely, cards are very useful tools to have in your wallet.
That, however, is where their similarities end.
Credit cards allow you to borrow and spend money (within your credit limit) with no interest charged until your miss your payment due date. Debit cards deduct from your bank account at the point of transaction.
This has huge implications for protecting yourself from fraud. When your credit or debit card details are compromised and fraudulent transactions are made, the difference it makes to you is huge.
If you used a credit card, you can simply call and report the fraud, and you will not be on the hook when the bill comes for that month. Your money is safe and untouched.
If you used a debit card, however, you would be in a terrible situation. Your hard-earned money in your bank account would already be gone. The onus would then be on you to raise this issue with the bank and pursue a refund. Have you ever tried to get a refund from a bank? While you wait for your money to make it through the (arguably necessary) red tape, you might be left dealing with cashflow problems alone.
#2 Interest-Free Loans
Interest on your credit card is only charged on the balance you still owe after your payment due date. Letting this due date slide without paying your charges in full will trigger hefty interest charge on unpaid balances, which amount to around 24% per annum.
However, with careful planning and prudent spending habits, this is not something you need to worry about. Instead, you can enjoy having credit available to you at no cost.
#3 Building Your Credit History
Having a good credit history will be important when you are taking loans in future, such as for a house or car. A non-existent credit history isn’t too great for you as well. When you consistently pay your credit cards bills, you are building a good credit history. Using a debit card does nothing for your credit history.
#4 Tackling Emergencies Like a Champ
Unexpected expenses are more common than you might think. This could be a house or car repair, or needing to foot the bill first for certain purchases for your company. When you are traveling, additional funds are sometimes needed to cover unexpected changes, such as needing to pay for alternative transport arrangements.
Read Also: How Much Should My Emergency Fund Be?
Rather than needing to dip into your personal savings, credit cards allow you to make such emergency purchases on credit first, make the claims and be reimbursed. In the case of young working adults who just started to accumulate savings, having multiple credit cards allow them to immediately access to a much larger pool of “emergency funds” than their bank balances allow.
Credit Cards, Always
As you can see, while debit and credit cards do offer some common benefits such as convenience and perks, there are clearly lots of important advantages of always choosing credit cards over debit cards.
In fact, in this age of e-commerce, the dangers of using a debit card and dealing with the unpleasant aftermath as a victim of fraud is scary. This should be reason enough to never use a debit card, especially for online transactions.
For those who say that debit cards are a way to prevent overspending, that doesn’t really make a lot of sense. Trying to control one’s spending by wiping out their savings account is a really horrible practice that does not help one cultivate good habits in the long run.
Instead, learn to plan well as you cultivate good money management habits and continue to enjoy the great benefits that credit cards offer.
DollarsAndSense.sg is a website that aims to provide interesting, bite-sized financial articles which are relevant to the average Singaporean. Subscribe to our free e-newsletter to receive exclusive content not available on our website. Follow us as well on Instagram @DNSsingapore to get your daily dose of finance knowledge through photos.