Financial Blog

Consumer IQ

Credit Card vs Debit Card vs Prepaid Card: Which Should You Use?

when to use credit debit prepaid card

Electronic payment cards have redefined the way we spend. Aside from faster transactions made with just a swipe, the rewards and exclusive deals we get from them are now staples in any cashless transaction. Add that to the advent of online shopping, electronic payments are becoming the norm, if not the most practical way to spend.

Here in the Philippines, there are three main types of cards to choose from—credit, debit, and prepaid. Knowing which one’s the best for your needs and your lifestyle is key to getting the most out them. Here’s a simple breakdown:

Debit cards are the most straightforward of the three. Using a debit card to pay for a transaction simply deducts the money directly from your account after your purchase. On the other hand, credit cards essentially let you borrow money up to a certain amount (your credit limit) from the card issuer to complete your purchase. Credit cards also has the added benefit of installment payments, that is, spreading payments to months or even years, not to mention the bevy of deals and discounts to partner merchants. Lastly, prepaid cards are not linked to any bank account and need to be reloaded once the balance is used up.

Read more: The 5 Easiest Ways to Improve Your Credit Score

Here’s a more detailed look:

WHEN TO USE CREDIT, DEBIT, OR PREPAID
FEATURES CREDIT CARD DEBIT CARD PREPAID CARD
LIMIT Depends on your credit limit Depends on the amount you have in your savings account Reloadable
PAYMENT Allows you to ‘borrow’ money to be paid back at the end of the card’s billing cycle Pulls the cash instantly from your savings/checking account Deducts corresponding amount of prepaid credits from your prepaid balance/load
FEES AND PENALTIES Interest charged for unpaid balance and penalties for late payments No interest fees but might have overdraft fees No interest fees
WITHDRAWALS VIA ATM Can withdraw a portion of credit limit (charged with fee) Can withdraw from savings/checking account Most prepaid card cannot be used in an ATM
MAINTAINING BALANCE No maintaining balance Requires maintaining balance No maintaining balance
WHEN SHOULD YOU USE THEM
SITUATION CREDIT DEBIT PREPAID
YOU’RE MAKING A SMALL PURCHASE FROM AN INDEPENDENT BUSINESS
YOU’RE SHOPPING ONLINE FROM MAJOR RETAILERS
YOU’RE BOOKING FLIGHTS, HOTELS, AND OTHER ACCOMMODATIONS
YOU WANT A RECORD OF YOUR PURCHASES
YOU’RE NOT DISCIPLINED IN PAYING BILLS ON TIME
YOU PLAN TO PAY IN INSTALLMENTS
YOU WANT TO LIMIT YOUR SPENDING
YOU WANT TO BUILD YOUR CREDIT SCORE FOR FUTURE BANK TRANSACTIONS
YOU WANT THE SECURITY OF GETTING YOUR MONEY BACK IF THE CARD IS LOST
YOU WANT REWARDS AND REBATES

Keep in mind that each card has its advantages and disadvantages. Regardless of which card you choose, make sure to review its terms and conditions. After all, you might be missing out on exlusive promos and rewards.

Subscribe

Search

Share This