Weighing-In On Credit vs Prepaid vs Debit Cards
Cashless transactions have changed the way we pay for our items, whether physically or online. Before, in order to buy something, you would need to have cash at hand to pay at the register. This would involve you seeing something you like, realizing you don’t have cash on you then running around looking for an ATM. Then when you find it you see that EVERYONE is using it so you sit in a queue for 15 minutes because some guy decides he wants to withdraw 5 different times. Huge hassle. Well, now you don’t need to do that anymore. You just go straight to the counter, whip out your card and voila!
Whether it’s a credit card, prepaid credit card or debit card, each one has its own set of strengths and weakness depending on the situation. And while you may favor one over the other, a specific type of card may better suit your needs and finances better than the rest. So to help you determine which one is best to use, we’ve made a list of recommendations when to go credit, prepaid or debit.
1. For buying big ticket items
One of its biggest edge over the two other types, a credit card, in concept “lends” you money to buy items — even those which cost above of what you have saved or earned. It lets you purchase items in advance and pay for it in installments. While it is still possible to use debit or prepaid credit card to buy expensive items, for example for household appliances, you’ll have to pay for these upfront using cash that you currently have.
2. For buying small, everyday items
It’s easier to forget items you bought which cost a couple of hundred pesos. And these small payments, if made often, will accumulate and make a serious dent on your credit card debt if you’re not careful. So it is wiser to pay for these small items in cash or debited directly from your account.
3. For frequent travelers
Prepaid cards are awesome alternatives to cash and travellers’ checks when you go abroad. Some prepaid cards, such as BDO or EastWest Bank Visa Travel Money Card even allows you pay in the local the currency (US dollar, HK dollar, AU dollar, SG dollar, Euro, Pound Sterling, Yen and Reminbi) forgoing foreign exchange rate fluctuations, and saving you thousands of pesos in the process. Just make sure you top more than enough during your trip (you’ll never know when you’ll encounter emergencies, and bring your credit card too, to be safe).
4. For online shopping
For safety purposes, never use your debit card when shopping online. If somehow you input your account details to a website with scams or frauds, hackers can easily access and wipe clean your bank accounts. Credit cards gives you an extra layer of protection through fraud protection. Some banks have put in place safety nets where they assign you a different card number to use when you shop online.
5. For those who do not have a credit card
Banks are normally cautious to award credit cards to first time holders, for lack of credit history to back you up. So having a prepaid credit card is a great way to have some of the perks of owning a credit card AND to build (or rebuild) your credit history. It’s your doorstep to maybe being approved for a credit line (not just credit card but loans too) in the future. Learn more about prepaid credit cards to see the advantages and disadvantages of having one.
6. For heavy spenders with little to no control over spending
Save yourself from your swipe-happy ways and from mounting credit card debt with a prepaid credit card. Topping up a set amount per month will make it easier for you to allot a budget for your shopping without breaking your bank.
7. For those who want rewards, promos and discounts
Banks offer some of the sweetest deals exclusive to its loyal credit card holders. Some cards offer rebates or you can collect points you can exchange for rewards each time you use your card. Check out the best credit card promos from different banks for October 2015!
You can check the table below for a summary to help you distinguish the features of credit, prepaid and debit cards:
|Credit card||Prepaid credit card||Debit card|
|Payment features||Purchases get charged to credit||Purchases are credited to topped amount||Purchases are deducted from your bank account|
|Perfect for||Buying big-ticket items||Curbing impulse buying||Buying everyday items|
|Watch out for||Going over limit, paying late||Paying beyond topped amount||Overdraft fees|
|Security feature||Security code or signature||Security code or signature||PIN code|
|Credit limit||5 figures and above||Depending on how much you top up||Average of P100,000|
|Ease of approval||Difficult||Easy||Easy, if you meet bank’s minimum requirements|
|Ease of use||Accepted worldwide||MasterCard and Visa cards are accepted worldwide||MasterCard and Visa cards are accepted worldwide|
|Linked fees||Late fees, compounding interest||Sign up fee, reloading fee, ATM fees||Overdraft fee, tax|
|Pay in installments|
|No maintaining balance|
|No initial deposit||Depending on bank and type of card|
|Rewards and promos||Limited||Limited|
|No forex fees|