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Should You Get a Debit or Credit Card?

Gone are the days of bartering: your cow for my 10 chickens. Today, we have to pay for our purchases. Whilst everyone would love to have enough cash on hand every time they need to pay for something, that’s not always feasible and in this cruel world, not very safe either. In such a situation, you’d turn to a debit or credit card. It’s hard now to imagine a time when those non-cash options weren’t available.
Credit cards have been around since the early 1950s , and debit cards appearing later in the mid-1970s. They are two different things but they have some overlapping functions – you can make payments anywhere and are generally accepted worldwide. You may be using a credit card or debit card or both, but do you know what sets them apart?

The basics on debit cards and credit cards

A debit card is linked to either a current or savings account . The amount deposited will be deducted automatically after every payment. To use it, make sure you have enough money in your account to avoid an overdraft or risk a rejected payment. Other than that, debit cards also act like ATM cards, allowing you to instantly withdraw cash. In contrast, a credit card is not linked to any of your bank account but you are allowed to spend and use the credit card to make a purchase. In other words, it can be said that you are borrowing the bank’s money to pay for goods and services. However, a credit card is limited to a certain amount of spending and there will be an interest and fees charges if used excessively.

The debit card – mechanisms and advantages

No interest payments

If you are using a debit card, you are spending money in your current or savings account and money will be deducted straight from it. Unlike credit cards, there’s no line of credit, so you will not bear any debt. Because of this, no interest is charged. Debit cards also come with a unique PIN number, known only by you and the bank. Sometimes you will be asked to enter your PIN number when you make a payment, especially when making online payments.

Ideal for spending control

Debit cards can help you budget. As your debit card is linked to your bank account, then you can only make a purchase based on your account balance, stopping you from overspending. Uncontrolled spending will ultimately lead to many unpaid bills and a bad credit rating, making it harder to apply for bank loans.

Fast approval

You can apply for a bank account during your 1-hour lunch break, no problem – unless everyone else has the same idea that is! All you have to do is walk into your preferred bank branch and apply. All you need to bring along is your identification card and an initial minimum deposit.

The Credit Card – mechanisms and advantages

Interest payments

Credit cards are not linked to your bank account. It is issued by the bank, giving the cardholder the option to borrow funds and allow you make purchases or get a cash advance , much like a personal loan. You will be charged an interest on your purchases if the bill is not paid in full by the payment due date. Make sure the bill is paid on time so you will not be charged a high interest. Usually in Malaysia, the interest rate for credit card is around 15% to 18%, while some banks start you off at a lower interest rate of 8.88%.

Lifestyle perk

One of main reasons why people apply for credit cards is for the additional benefits, such as cashback, reward points, and exclusive discounts. Some credit cards are catered to avid travelers, providing them with comprehensive insurance plans and travel coverage. Some cards are geared to those who lead an active lifestyle, with promotions for concert tickets and free access to exclusive events.

Compulsory credit check

General rule of thumb -If you are interested to apply for a credit card, you should have a steady income of at least RM24,000 a year, and have no outstanding unpaid debt that could affect your credit assessment. Databases such as the CCRIS will contain payment information about your loans including your personal loans, home loans, personal loans, car loans, and credit cards.
The outcome of your credit assessment will determine the type of credit card you are eligible for and your available credit limit. You may also request for a supplementary card, but who you are able to give it to will depend on the terms and conditions set out by the banks.

Which one is for you?

Both credit and debit cards are convenient ways to access and spend your money anytime, anywhere. If you think you can spend wisely, and able to pay debt on time, using a credit card can be a good way to leverage on your current income with its added privileges. Otherwise, if you have difficulty managing your expenses, a simple debit card is more suitable.
For many Malaysians; they choose to have both. The credit card is handy at times when there isn’t any money in the bank but they need to make an important payment and the debit card is a great spending tool if you’re not low on funds.
However, if you do have trouble managing the temptation of spending unnecessarily with a credit card – you might want to give it a skip!
Original Article Source Link:
FMT News, dated 8th April 2014
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