When is a Debit Card More Dangerous than a Credit Card?

Debit cards are safer than credit cards, right? Wrong. A debit card can actually pose more threat to your financial health than a credit card.

Do you have uncontrollable urges to spend $10,000+ on virtual farm animals? No? Then you’re one of the well-adjusted people who should consider a credit card. In truth, the only real advantage of credit versus debit is one of controlled spending. If you have a bit of discipline, a credit card is actually better for savings—and it’s sometimes safer:

In some situations, a debit card can be more dangerous than a credit card.

1. Identity Theft can be Much Worse if Your Debit Card is Stolen

Whether your credit or debit card is stolen, your maximum liability should only be $100 according to Association of Banks in Singapore (ABS) guidelines.

However, there is an important difference: with a debit card, the money spent by a thief is taken directly from your bank account. With a credit card, no money is actually taken from you yet.

In either case, you will have to raise a dispute on the charges to avoid paying them.  The bank will then investigate your claim, and this can take a few weeks (sometimes even months). This is the point where things get rough on debit card holders.

During the investigation period, the debit card holder has no cash on hand. The thief has probably emptied their bank account, so simple things like paying electricity bills or buying food will be a major hassle. A credit card holder however, will still have cash:  money charged to their credit card isn’t immediately deducted from their account.

2. Debit Cards can be Almost Useless in a Crisis

Say you have an unfortunate accident. The medical costs come to over S$3,000, which is more than your current savings; and you can’t exactly wait until your next paycheque if you’ve broken a leg or require surgery.

If all you have is a debit card, you’re in trouble. A debit card can never give you more money than what is in your account, so you’d better have a generous friend or relative you can inconvenience. Even if you decide to take a personal loan to cover it, don’t assume you will get one instantaneously (you can try to get loans with SingSaver.com.sg’s personal loan comparison tools, but a credit card is the best guarantee of instant credit).

If you had a credit card, you could use easily use it first and gradually pay down the amount.

A common contention to this is that you should have an emergency fund, which prevents you needing a credit card for such reasons. This is brilliant in theory, but not always functional in reality. There may be times when you’ve just spent the emergency fund on a previous crisis, or the fund is still being built because you’ve only three months in the workforce.

We encourage you to build an emergency fund of six months of your income, and to do so as soon as possible. However, the fact remains that having the option of instant credit is safer.

3. During a Dispute, Credit Cards Let Your Bank do the Fighting. Debit cards Let YOU Do the Fighting.

Let’s say you dispute a charge because the merchant is less than honest. Perhaps you buy a bag online, and you get a cheaper model sent to you instead.

Now if you used a credit card and get the payment is blocked, it’s the bank that ends up fighting the merchant. After all, it’s their money that was taken, not yours. But if you use a debit card, the money has been deducted from your account. You’re the one left to fight the merchant, and therein lies all the difference.

In the event that a legal tussle happens, recovering your loss will involve you going down to small claims or CASE to work things out. It could take months, cost you more money, and may not even end in your favour. With a credit card, it’s the bank’s lawyers that have to handle it.

Debit cards are great, but credit cards give you a lot more rewards, especially when you pay off your debt in time. To find out more about credit cards, check out our FAQs.

Photo Credit: USDA

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