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