Credit Card, Debit Card or Prepaid Card. Which one is for you?

As Warren Buffet said, "If you can't pay it in cash, you can't afford it" This is the mantra that needs to be followed if we want to achieve financial freedom.



Credit Card Debit Card or Prepaid Card which one is for you
"Credit-Cards" by Lotus Head is licensed under CC BY-SA 3.0

Of course, we know that what he meant was not literally paying the items in cash… but be able to pay without tightening our belts. Because we are not fortunate enough to be like Warren Buffet, having some type of payment scheme offered by banks is really advantageous

There are three digital wallets offered to us by banks:
      • Credit Card
      • Debit Card
      • Prepaid Card
The most popular is the Credit Card. Now, before you jump in and raid your bank to get this coveted plastic card. You must know first the difference of the three in order for you to weigh the options.

First, let us tackle the Credit Card
    • In bank terms, credit means borrowing. Meaning, all your purchases made using this card is money you borrowed from the bank.
    • Depending on your capacity to pay which is determined by your annual income, the bank will either give you a low or high credit limit.
    • Credit Limit – is the amount of money that the bank is allowing you to borrow.
    • How it works?
      • All you need to do is walk to a store, find the item that you want to purchase and pay using your credit card. That is so simple!!
    • How to pay?
      • The payment schedule is determined by your bank, it can be once or twice a month.
      • You can pay the whole amount of the purchase, the minimum monthly payment or slightly above it.
      • How to know the minimum payment? It is usually indicated when purchasing the item. So make sure that you are reading all the bases.
      • Payment can be done through the bank's online facility or if you want a more personal feel, you can physically go to the bank and make payments.
    • Is there an interest?
      • A very clear, Yes!!! Why? because this is how your bank profits from you. Aside, from the fact that you will also be penalized if you are not able to pay on time.
      • Make sure that you are align with your payment schedule. Be aware also of the banks payment cut off time. If you arrive at your bank late even for a minute. You will be penalized still.
    • What's in it for me?
      • The Good Side
        • If you are a good and prompt payer. The bank will increase your credit limit and lower your interest rate during purchases.
        • They can even waive your annual credit card fee. Yes! there is an annual fee.
        • Your credit score will go up which in turn expedite the approval process of your loans. This is very advantageous if you are planning to buy a house or car.
      • The Bad Side
        • If you are not prompt in paying your dues, they can either lower your credit limit or reject your credit card renewal application.
        • Credit score goes down and you will be considered as bad news when applying loans. Banks will be wary of you.
        • If you want to recover you credit standing, all you need to do is to pay your obligations on time.
Second contender, the Debit Card
    • This card is tie up to your bank account. Meaning, all your purchases will be deducted (Hence the Debit term) to your money that is currently deposited in your bank.
    • How it works?
      • Pretty much the same as the credit card
    • Is there an interest?
      • None, why? because you will be buying the item paying the whole amount. Basically, if your deposited amount is not enough to cover the purchase. You will not  be able to buy the item.
    • How to pay?
      • Just deposit an amount to your account that is tied up with your Debit Card.
    • What's in it for me?
        • You will be able to control your spending
        • Credit score will not go up or down
        • Loan applications will be approve depending on how big the amount is in your account.
Third, the new kid on the block. The Prepaid Card
    • This is a hybrid of the two. It functions as a credit card, but the payment scheme is the same as the debit card.
    • How to it works?
      • The same a the credit card
    • Is there an interest?
      • Depends on the bank, There are banks that considered Prepaid cards as Credit Cards while others considered it as Debit Cards.
    • How to pay?
      • If you want to purchase an item, all you need to do is load the card with the desired amount. This is knowing how your prepaid card works.
    • What's in it for me?
      • You will be able to control your spending
      • Credit score will not go up or down
      • Loan applications will be approve depending on how big the amount is in your account.

So there, I've already laid out the advantages and disadvantages of the three. All of the three available cards have their own strength and weaknesses. It really depends on you of what type of card you are going to get.

If you have a very high amount of take-home pay, then a credit card is the best. But if you are wary of your spending habits, then get a Debit Card or Prepaid Card. And if you are an occasional online buyer Prepaid card is what suits you. This is not about which is a good or bad decision, this is what suits you best... Because by the end of the day, it is your life in perspective.

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