When you are using credit card, you owe the bank money. When you are using debit card, you use your own money. Which is better then?

Obviously, for those who knows how to manage money, credit card is the best tool for you to pay almost anything. Instead of saying you owe the bank money, paraphrase it and say that you are using someone else’s money (the bank), to fund your lifestyle and purchases. You pay them back 30-45 days later interest free.

However, if you are someone who often have impulse in buying and poor management of your finances, it’s better that you don’t own any credit card as this could be a dangerous tool for you, just like it had happen to many people before. They owe the bank money through credit card, and were charged an exorbitant rate of upwards 25% p.a for the bills which they couldn’t pay in full. Therefore, credit card can be the best tool for the right person, and the worst possible tool if held by the wrong person.

For the financially savvy person, debit card present zero benefits to you at all. Every time you use your debit card to fund your purchases, the money is debited from your bank account instantly. You earned lesser interest when your bank balance dropped. Besides, your debit card is subject to the same risk as credit card when it comes to fraudulent transactions. The poor thing is the charges, regardless is fraudulent or not, is being debited from your balance while the case is being investigated. The bank only refund it back after case is closed. For credit card, at least we can choose not to pay those charges which are not of our fault.

When you use credit card, the bank works for you. When you use debit card, you are working for yourself instead.

Another perk of using credit card is none other than the tons of rewards that is being dangled by the bank. I doubt you get such rewards when you use debit card. Why is this so? You gotta understand how bank makes money, then you will understand why you get rewarded by using credit card, and not debit card.

Bank makes money by lending money. They use your deposit in the bank to lend it to someone else. When you use debit card to fund your purchases, the bank technically will have lesser money now in their system, and hence has lesser money to lend to others. They “lose” money when you use debit card. On the other side, when you use credit card, bank helps you to pay your purchases to the merchants. In fact, they charges a fee to the merchants too when you use credit card. For example, if you buy a $100 item using credit card from IKEA, the bank will disburse $99 to IKEA a few days later, earning that $1. You owe the bank money now, and the bank will ask you to pay 30-45 days later. Depending on when you can pay in part, or in full, the bank will charge a interest rate of 0% all the way to 25% upwards. That’s where bank make the money, from the merchants, and from the “borrowers” who failed to pay the bills in full on time.

If you understand the above, you now will know why they reward us for using credit cards. Miles, cash rebates, free hotel stays, just to name a few…Banks make majority of their money by lending us money. That’s why they are called lenders, and DBS bank is the biggest lender in ASEAN.

If credit cards are so good, should I use apply many of them? My personal preference is keep 2-3 credit cards will do. Different cards have different perks, and I don’t really compare which is better, or constantly keep myself updated on the latest card. My principle is simple; when you charge almost everything on the card, you are a big customer to the bank, and they will reward you. For those who desired to have that ultimate card such as AMEX black card, or some Metal card which is by invitation basis, come on, the bank doesn’t look at your net worth or income, they look at your purchasing history. The more you purchase via credit card, the more you are helping the bank make money, and hence they reward you with other perks. The bank earns little or nothing when you use debit card. Just remember that.