Debit Card vs. Credit Card: Which Card Should I Use?

Venus Zoleta

Venus Zoleta

Last updated May 31, 2022

Debit card vs credit card, which is the right card to use? Each time you open your wallet to pay for a purchase, you face this dilemma when you don’t want to pay in cash. You then ask yourself “Should I pay with my credit card or debit card?”

But using a particular card in certain situations makes a huge difference in your finances. Keep reading this debit card vs. credit card guide to learn more.

What are the Similarities of a Debit Card and a Credit Card?

On the surface, the two cards look identical. Both have a 16-digit card number and an expiration date on the front side. With these similarities, it’s easy to be confused about their main use.

When it comes to transactions, you can use both cards to make online and offline purchases. So, if you have no idea that you can score those seat sales online with a debit card, try using your debit card next time! 

When it comes to making offline purchases, both will require a point-of-sale (POS) terminal to complete the transaction.

You can also use both cards to withdraw cash from the ATM. Though, you must note that withdrawing cash using your credit card operates under an entirely different set of conditions (more about it later).

Read more: Cash vs. Credit Card: Should You Go Cashless?

What are the Differences Between a Debit Card and a Credit Card?

The key difference between a debit card and a credit card lies on where the money used for payment is taken from.

Using a debit card involves taking the money directly from your savings account or checking account to pay for a purchase. You can keep charging transactions with your debit card as long as you have available funds in your bank account, or until you’ve reached your daily POS purchase transaction limit.

On the other hand, using a credit card means borrowing money up to a certain amount from your issuing bank to pay for your purchase. The total amount you can spend with your card per month depends on your credit limit. And since you’re borrowing from the bank, you’re expected to pay back what you owe by the due date.

Learn more from this short explainer video:

Read more: Take Your Pick: 22 Credit Cards in the Philippines with the Best Features and Benefits

Debit Card vs Credit Card: Best Uses of a Credit Card

What are the best uses of a credit card, you ask? We've listed them down for you.

1. Paying for Big-Ticket Purchases in Installments

debit card vs credit card - best uses of credit card

 A standard feature among credit cards in the Philippines are the 0% installments. You can pay for your purchases in more manageable amounts over 12 to 24 months instead of making a one-time full payment.

This makes a credit card ideal for buying items you normally can’t pay upfront in cash, such as gadgets, appliances, and furniture. In some cases, you can also use it to pay for the down payment of a certain item.

Moreover, some credit cards offer purchase protection insurance that pays the cardholder a certain amount for every damaged or lost item charged to their card. Others provide extended warranties, too.

2. Online Shopping

The internet provides shopping convenience—but it isn’t a 100% safe place to shop. Using both the debit card and credit card for online purchases carries the risk of fraudulent transactions.

However, it’s what happens after an unauthorized transaction that makes all the difference. Credit cards are safer to use than debit cards[1] as credit cards offer more protection against unauthorized transactions.

If a hacker uses your debit card without your knowledge, the amount gets deducted from your bank account right away. In contrast, an unauthorized transaction charged to a credit card is quite easier to deal with. It’s technically the bank’s money—not yours—that’s stolen.

Get the best credit card for online shopping!

Using a credit card is a better way to manage your finances if you travel frequently.

When you charge your travel expenses to your debit card, the amount is taken immediately from your account. Imagine how much will remain in your bank account if you’ve spent five-digit or six-digit figures for booking your flights, hotel accommodations, tours, and other travel essentials. You might be short of money for your living expenses.

With a credit card, you can book your travels without wiping out your savings account in one go. What’s more, you’ll enjoy travel perks such as air miles (which you can use to redeem free flights later), travel insurance, airport lounge access, and travel assistance.

4. Travels Abroad

Other than using your credit card to book flights and hotels, you can actually use it as a spending tool when you’re in a foreign country. International credit cards branded with the Mastercard, Visa, or JCB insignia are universally accepted, so there should be no problem using it outside the Philippines.

You can conveniently use it at restaurants and tourist attractions. You can also earn some rewards points if you shop at partner merchants or shops.

Just remember that every purchase will be subject to a foreign transaction fee. Usually, the fee ranges from 1% to 3%. On top of that, you’ll also be charged with a 1% assessment fee.

 

5. Paying for Bills and Other Recurring Charges

Due dates of your utility bills are easy to forget if you’re paying in cash or debit card. The auto-debit arrangement feature of a credit card helps you automate payment for your bills and other recurring charges such as insurance premiums. This way, you avoid missing a payment and the hassles that come with it.

Also, bills payment is easy nowadays using mobile apps that accept credit card payments.

6. Getting Rewards and Promos

debit card vs credit card- credit card rewards and promos

Credit card companies usually team up with select shops, restaurants, and gasoline stations nationwide to offer promos that will entice cardholders. If you love eating out or usually gas up using cash, consider using your credit card next time. Common credit card perks include exclusive discounts, cashbacks, rebates, and even airline miles.

If you want to enjoy the rewards and promos offered by your credit card issuer, then it makes more sense to use your credit card for purchases that qualify for those perks. But be sure to pay the full balance—not the minimum—every month, so you can continue to avail of credit card rewards and promos.

7. Building a Good Credit History

Especially if you’ve never had a credit card or loan, you need to establish a positive credit history so you can easily get approved for loans and credit cards in the future. When deciding credit card vs debit card, credit cards win for this certain reason.

Using a credit card responsibly is a great way to boost your credit score and make you creditworthy in the eyes of banks and other types of lenders. The bank reports your credit card payment history, credit utilization ratio, and the age of your credit card account to the credit bureaus[2]. Such data is used to compute your credit score.

Debit card transactions aren’t included as criteria for determining a person’s credit score.

8. Paying Off Debts

Using your credit card to settle some of your debts may sound like a counterintuitive piece of advice. After all, conventional financial wisdom tells you not to deal with debt with another form of debt. But there’s a strategy that you can use to avoid paying high interest rates: do a balance transfer.

Balance transfers are technically a debt consolidation method. Using this technique, you’ll be able to transfer your high-interest credit card debts to a new credit card with a much lower interest rate or even 0% interest rate. When you avoid high-interest charges, you’ll be able to reduce the overall amount of your debt.

Just a word of caution: the lower monthly add-on rate or 0% interest feature of new credit cards are usually offered as promotions. If the promotional period ends, the regular rates will apply, which are sometimes much higher than what your previous credit card offers. As such, it would be wise to pay off the consolidated debts before the promotional period ends.

Debit Card vs Credit Card: Best Uses of a Debit Card

What should you use your debit card for? Here are some of its best uses.

1. Everyday Purchases

debit card vs credit card - debit card for everyday purchases

If you compare credit card vs debit card, then the latter is safer to use for small purchases such as groceries and medicines. Because you’re using your own money, it helps you become mindful of your spending and stick to your budget. Moreover, you can easily track your expenses since every transaction is recorded in your mobile banking app  (if you’ve connected your debit card to the app).

2. Withdrawing Cash

ATM withdrawals are cheaper with debit cards compared to credit cards. When you withdraw money using your debit card, it’s free of charge if you use the ATM of your issuing bank. Withdrawing cash from an ATM of another bank will incur you a minimal service fee between PHP 10 and PHP 18 per transaction.

Just like debit cards, credit cards allow you to withdraw cash from the ATM. This is called a cash advance.  But remember that the money you’re withdrawing is just borrowed against your credit limit. That means, every time you withdraw, your credit limit gets lower. It’s important to remember that cash advances also come with certain fees. These include the cash advance fee worth PHP 200 and the monthly interest, which is typically much higher than the rate charged on regular purchases.

With such conditions, we strongly recommend to only treat cash advance as a last resort.

3. Controlling Bad Spending Habits

Do you often splurge and max out your credit card? Have an unpaid credit card balance each month?

It’s a sign that you’re having problems with your credit card use, and it’s time to curb that bad habit. To avoid drowning in credit card debt, it’s better to use your debit card until you’ve developed financial discipline.

The best thing about using a debit card? Unlike a credit card, a debit card makes it impossible for you to spend money you don’t have.

4. Transferring Money  

Gone are the days when you had to go to the bank to deposit money into another person’s account. Because banks these days have their own mobile apps, you can easily transfer funds using your computer or smartphone. Just make sure that your debit card is registered in the app.  If you’re outdoors and you need to transfer money ASAP, you can do so via the ATM.

5. Avoiding Unnecessary Charges   

When you use your credit card, you’re not only accumulating debts. Settling them means that you’re also paying off the interest charges. And the longer your payment term is, the longer you’re required to pay off the interest. On top of that, you may find yourself paying other charges, such as the penalty, overlimit fee, charge slip fees, and annual fees.

You won’t need to cover these expenses when you use your debit card since what you’re using is your own money.

Summary of Debit Card vs. Credit Card Guide

To help you understand the debit card and credit card differences, check out this table:

FEATUREDEBIT CARDCREDIT CARD
Main usesLets you make purchases online and offline. Depending on the issuer, the card’s use may be confined within the country where the card was issued.Lets you make purchases online and offline. Since most credit cards are universally accepted, you can use them abroad.
Source of fundsFunds are directly deducted from your personal current/savings account.Funds are borrowed from the bank or credit card company.
Interest chargesNot applicableInterest charges are applied every month.
Spendling limitWill depend on the amount of money in your personal accountWill depend on your card’s credit limit
Cash withdrawalAllowed. Balance inquiries and withdrawals are free if done through your bank’s ATM. Otherwise, prepare to pay minimal fees.Allowed. But you need to pay the cash advance fee worth PHP 200. You’ll also need to pay the monthly interest, as the cash is borrowed against your credit limit.
Extra feesNoneDepending on your card, you may need to pay the following: annual fee, foreign transaction fee, balance transfer fee, gambling fee, late payment fee, overlimit fee, installment pre-termination fee.
Perks and privilegesUsually, cardholders may enjoy discounts on their purchases from the card’s accredited shops.Depending on the issuing credit card company and partner shops, you may enjoy the following: discounts, cashbacks, rebates, airline miles, reward points, introductory rates, travel insurance, access to airport lounges, gift certificates, free shipping/deliveries.
Maintaining balanceMay require maintaining balanceNo maintaining balance

Read more: Score Rewards for Flying: How Airline Customer Loyalty Programs Work

Final Thoughts

Now, let’s deal with the credit card vs debit card debate. Which is the better card to use? The short answer: it depends on what you’ll use it for and how well you handle your finances.

How about you? Debit card vs. credit card, which one do you prefer to use? Which card is more advantageous for you? Spend wisely if you own both cards.

Enjoy no annual fees on your credit card!

Sources:

 

Venus leads the blog content strategy and optimization at Moneymax as the Head of Editorial Content. She has 15+ years of experience in content marketing, corporate communications, and public relations. Venus graduated cum laude with a Journalism degree from the University of the Philippines Diliman. Before joining Moneymax, Venus had written informative guides and articles, specializing in personal finance and digital marketing. She also invests in stocks, mutual funds, VUL, and Pag-IBIG MP2. A hardcore Hallyu Tita, she enjoys bingeing K-dramas on Netflix while bonding with her rescued cats. Follow Venus on LinkedIn.