Money Management

Debit Card vs. Credit Card: What’s the Difference?

Money Management
August 11, 2022
2 min. read

Debit cards have become more prevalent in the Philippines since they allow shoppers to charge purchases directly to their ATM cards. Debit cards function similarly to credit cards, requiring only a single swipe or tap to complete shopping transactions. However, are they better or the same as having a credit card?

If you’ve been wondering the same thing, worry no more. This article will discuss the difference between debit and credit cards and the advantages of each.

What is a Debit Card?

A debit card is a bank-issued payment card that enables you to make easy and secure purchase payments, in-person or online, by drawing money directly from your savings or checking account.

Debit cards are linked directly to one of your bank accounts. Therefore, the money you use for purchases is your own. Unlike a credit card, you will not be borrowing a line of credit (LOC) when you use your debit card.

Paying with a debit card works the same way as a credit card. You swipe the card or insert it into a payment terminal, input your PIN, then wait for bank approval of your purchase. Debit card issuers partner with known credit card brands, such as Mastercard and Visa, to allow you to pay with your debit card wherever merchants accept those brands.

Pros of Using a Debit Card

  1. Debit card issuers charge lower or no annual fees.
  2. A debit card affords you the same convenient cashless mode of payment as a credit card.
  3. Since debit cards draw money from your bank account and have no LOC, it’s easier to stick to your budget without incurring debt.

Cons of Using a Debit Card

  1. You have no access to instant cash in case of emergencies since you are limited to your savings.
  2. Debit cards don’t offer the luxury of paying in installments.
  3. Unlike credit cards, making purchases with a debit card doesn’t reward you with perks or rebates.

What is a Credit Card?

A credit card is a payment card that allows the cardholder to borrow funds they can use when paying for products and services. You can spend up to a certain amount, also known as a credit limit. If you want to use your credit card, you have to draw from your LOC instead of your bank account to complete purchases and transactions.

In contrast to debit cards, credit cards impose the condition of paying back the money borrowed, plus any agreed-upon interest and miscellaneous charges—either in full on the billing date or over a set period. Failure to pay off your credit card debt on time can result in additional interest charges and late credit card fees.

Pros of Using a Credit Card

  1. When you pay with a credit card, you can earn points to avail of rewards like discounts, cashback, rebates, gift cards, or even airline miles.
  2. You have access to exclusive credit card promos, such as discounts and freebies.
  3. Having a credit card helps build your credit rating, which makes it easier for you to get approved for loans, higher credit limits, or more credit cards.
  4. Credit cards are convenient payment options in case of emergencies.
  5. Most credit cards have installment payment options that let you break up your purchases into smaller payments, making it easier for you to buy expensive items, such as appliances and gadgets.

Cons of Using a Credit Card

  1. You may find it more challenging to stay on track with your spending, especially if you have a ready LOC for use.
  2. Credits cards often have annual fees and other miscellaneous fees you must pay.
  3. Again, failing to pay off credit card debt on time may lead to late fees that could compound until you settle them.

Debit Card vs. Credit Card: Best Times to Use Them

Specific scenarios call for the use of one card over the other, and your choice can significantly impact your spending habits. While it’s good to have both on hand, properly using a credit card instead of a debit card and vice versa in the right situation can provide better benefits as you’ll see below.

Best Times to Use a Debit Card

1. When you want to manage your spending better

Using a debit card makes it easier to avoid overspending. Since your bank accounts are the primary source of funds, you can only spend the deposited balance. Additionally, making purchases with a debit card does not incur additional fees like interest.

2. When you want to pay off your tax bill efficiently

Paying off your tax bill with a debit card affords you a flat fee. With a credit card, payments come with processing fees causing you to pay more.

3. When you want to avoid merchant fees

Most sellers who allow credit card payment impose a surcharge. Fortunately, purchasing with your debit card excludes you from such fees. In addition, using a debit card for international purchases can give you lower foreign transaction fees.

Best Times to Use a Credit Card

1. To earn reward points

One of credit cards’ most significant selling points is they have rewards and loyalty programs. Completing transactions and making purchases with a credit card can accumulate reward points. You can then redeem those perks through air travel miles, vouchers, and exclusive gifts.

2. For better protection of your bank account

As a responsible credit card holder, you always look for ways to safeguard your bank account. Fortunately, most credit card issuers offer robust fraud protection and multiple safety features to keep your credit card account intact.

3. To build or improve your credit score

Creditworthiness enables you to secure loans with lower interest rates, high-quality mortgages, and other necessary credit lines for future purchases. Using a credit card responsibly allows you to build or improve your credit rating.

4. When you’re traveling

Bringing a credit card when traveling saves you from the burden of carrying cash. Tourists are typical victims of pickpockets and thieves, and carrying huge amounts of cash on you only makes you a bigger target. On the other hand, a credit card has fail-safe measures in place that protects your money even if it gets stolen.

Playing Your Cards Right

A debit card and a credit card offer different advantages, and choosing one over the other will depend on your situation. However, if you’re looking for a card that benefits you long-term, a credit card is the way to go.

Credit cards provide convenient and instant cash boosts in dire times. They also contribute to your credit score, which is necessary for major purchases.

If you want to start using a credit card, look no further than RCBC Bankard. As one of the Philippines’ largest credit card issuers, RCBC is committed to providing its customers with superior service and quality products. Apply for your RCBC online credit card today!

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