Last Updated on July 28, 2020
You may have heard almost every money management guru talking about how the best way to cut on spending is to use your debit card and not your credit card. And in some instances, they may be right. But not always.
Here’s why you should choose credit cards over debit cards when you make payments:
1. Rewards Galore
Probably the most obvious reason to use your credit card instead of your debit card is, of course, the rewards you earn each time you swipe your card! From cashback and cash rebate to reward points and air miles, credit cards actually help you save while you spend.
If you pay your bills in full and on time, you can rack up enough air miles for a round trip to Bali or get cashback each time you make a purchase at the grocery store. Moreover, credit cards are made to reward you for spending. So, if a major portion of your monthly income goes towards grocery shopping, using a grocery credit card like the Citibank SMRT Card can get you up to 5% savings on your grocery spends. For example, if you spend $300 per month at the grocery store, you earn $15 as cashback! Not bad, huh?
2. Build Your Credit Score
Have you ever encountered a situation where someone applies for a loan for the first time in their life, and when the bank goes to check their credit history and credit score, there is nothing available? Yeah, you may think that’s a good thing, but it really isn’t.
You see your credit score is extremely important since it tells banks and financial institutions if you are indeed creditworthy. A good credit score increases your chances of being approved for a loan later in life. And credit cards are a great way to build your credit score.
Every time you swipe your card and make your payments, it forms a part of your credit history. Keep in mind though, that your credit card will help build your credit score only if you make timely payments. The minute you default on them, your credit score can fall. And sometimes drastically.
That being said, using a credit card responsibly is a great way for you to start building your credit history.
3. Fraud Protection
The biggest beef most people have with debit cards is that if an unauthorised transaction is made using your debit card, it is almost next to impossible to get the money back. With credit cards, the story is different.
If any fraudulent transaction is made using your credit card, then rest assured that you will not be held liable for those transactions. In fact, once your bank is convinced that the transaction that was made wasn’t due to negligence on your part, your liability will not exceed $100. Even this liability will only be imposed on unauthorized transactions made before you informed the bank regarding your card being lost, stolen or if the PIN was disclosed to an unknown party.
This isn’t the only way credit cards trump debit cards when it comes to fraud protection. Some credit cards offer, as an added benefit, purchase warranties and e-commerce protection. So, if you end up buying something online that is defunct or you receive something that isn’t quite what was advertised, your e-commerce protection will kick in and you can be reimbursed for the amount you swiped on your card or pay for accidental damages occurred within the warranty period.
4. Purchasing Power
Want to buy new kitchen equipment or buy the latest laptop but don’t have enough money in your account? Even if you do have enough money, using your debit card may just lead to you emptying your account for that month. This is where your credit card comes into play.
Your purchasing power increases exponentially when you use your credit card. You can buy big-ticket items and convert the purchase to monthly installments. This way, you aren’t emptying your bank account. Such plans also come with 0% interest (there may be a one-time processing fee, which in some cases can even be waived).
5. Promotional Offers
Another reason you should pay with your credit card? Well, because they have great promotional offers and discounts! Your card comes with great shopping, travel, and dining deals. They are all valid only when you make payments using your card.
Whether your card is a student card or an exclusive card, they will all offer you more benefits than just the convenience of not having to carry cash or being able to afford an expensive item. For instance, your credit cards could get you a great 1-for-1 lunch deal at some of the best restaurants in Singapore or even access to member-only clubs!
Simply put, credit cards offer convenience, which to be fair debit cards do as well, but credit cards also give you greater financial flexibility. It can be used during times of emergency and the benefits you get in terms of rewards are unparalleled.
To everyone who tells you that it is safer to use your debit card, show them this list. If you use your credit card wisely, it can help you save money as well as fund your round-trip ticket to Thailand (or a dream destination) for free! You definitely can’t say the same for debit cards!