Credit vs Debit Cards

What is a credit card and how does it differ from a debit card?

• Credit cards use borrowed money from the issuing bank, called a credit limit.
• Debit cards use funds from a linked bank account.
• Credit cards have a billing cycle with a cut-off date and a payment due date, usually 10-15 days after the cut-off.
• A billing period combines all credit card activity for a set period.
• The payment due date is the deadline to repay the total amount charged within the billing period.
• Credit cards allow installment payments to divide purchases into monthly amounts.
• Debit cards rarely offer rewards like points, miles, or cashback, with a few exceptions, unlike credit cards.
• Credit cards often have more extensive loyalty programs with higher reward amounts.
• Credit cards usually provide a wider array of discounts and benefits.

Credit Card Costs

• Credit cards have costs not typically found with debit cards.
• A monthly maintenance fee varies by card and issuer, ranging from free to over 20,000 pesos.
• Some cards are free; others may charge additional fees quarterly, annually, or semi-annually. Interest is applied to installments.
• Interest charges vary by institution. The National Credit Association (CNAC) provides tools to compare interest rates.
• Some institutions offer promotional interest-free installment periods—three, six, or 12 months are common examples.
• Installment payments may have a stamp tax, except for certain 'cash payment' options (not the same as interest-free installments) or cards from cooperatives.
• Credit card advances, borrowing cash directly or using an ATM, accrue interest and taxes.
• Avoid credit card advances unless investments earn more than the interest charged.
• Interest rates differ for installments, advances, minimum payments, and partial repayment.
• Revolving interest, for failing to pay the minimum monthly payment, tends to be the highest rate charged.
• Late payments and debt collection may involve additional interest charges depending on the outstanding balance.

Avoiding Credit Card Costs

• Avoiding credit card maintenance fees is often difficult, as conditions like minimum spending, points accumulation, or usage frequency are common requirements.
• Most credit cards require the fee regardless of use unless under specific terms like Rapicard or Tempo card which have no maintenance fee conditions.
• Pay in full and by the payment deadline to avoid interest charges.
• Understanding your billing cycle, including the cut-off date and payment due date, is crucial.
• Only certain credit cards, such as Rapicard and Tempo card, are exempt from maintenance fees without usage requirements.