Between Credit Cards, Debit Cards and Charge Cards

Updated 20 Dec 2017 – By Loanstreet


When eating out or buying groceries, it isn’t uncommon to realize too late that you don’t have enough cash to cover the bill. Back then, it would’ve been embarrassing. But today, most of us would just pay with a charge / debit / credit card and not think much of it. So what are these plastic cards and how are they different from each other?

Charge cards

When you use a charge card, the card issuer would pay to the merchant first on your behalf and bill you for it later. Expenses incurred on the card are accumulated and tracked by the card issuer, and these expenses would be billed to you during your monthly billing cycle. Generally, the bill must be paid in full within 15 to 30 days from the date of billing. Failing to do so would result in your charge card being frozen.

There is a limit to the total amount of expenses you can carry on credit (known as the Credit Limit). But charge cards are known for having very high limits compared to credit cards.

In recent times, charge cards have been falling out of popularity, giving way to more popular “plastic” payment alternatives like credit cards and debit cards. The most popular charge cards in Malaysia today are American Express (Under Maybank) and Diners Club. Other available charge cards include those issued by Al-Rajhi, Public Bank, UOB, and MBF.

Credit cards

Credit cards work the exact same way as a charge card. But unlike charge cards, instead of having to pay the full amount before the due date, you have the option to make only minimum payment (5% of the outstanding balance or RM50, whichever is higher) and carry forward the rest of the outstanding balance to the following month. As long as you did not reach your credit limit and pay promptly every month, your cards would not be frozen.

But there is a catch. Card issuers charge an interest for any outstanding amounts carried forward. Interest rates typically range from 9%-18% p.a. For someone who habitually pays only 5% minimum payment every month, that quickly adds up. It would take a person 3.5 years to pay off a RM2000 bill amount if they paid only minimum amount every month. And they would end up paying a total of RM575 in interest. That is among the priciest form of financing provided by banks!

Additionally, to curb the uncontrolled proliferation of credit card debt, the Ministry of Finance has imposed a yearly RM50 service tax on all principal credit cards and RM25 service tax on all supplementary cards.

But If you use them responsibly, credit cards can offer other advantages. They help build your credit score as long as you pay your bills on time. Many offer additional benefits and reward schemes that you can use to get presents, cash return or discounts for products, services and special events. They also offer better protection against fraudulent transactions and better leverage in cases of dispute with merchants as compared to a debit card. 

Debit card

While credit cards and charge cards are credit facilities, debit cards are not. Debit cards are always linked to a current / savings account. When you use a debit card to pay, you are essentially accessing the money in your account. Your usage limits are essentially only as much as you have in the account. There are no monthly bills which the bank will send to you.

Many debit cards have benefits and reward schemes similar to those offered for credit cards. That is one of the added advantages of using a debit card compared to paying by cash.

Loanstreet recommends:

  1. Have at least 1 credit card to build a credit history. Without any credit history, it is difficult to obtain a bigger sized loan (E.g. home loan) from a bank

  2. For those with problems being disciplined in spending, debit cards may be a safer choice

  3. Plastic cards may prove to be a life saver in times of emergencies where cash is short

To conclude

If you have never ever owned a plastic card, getting one opens up a world of convenience and many other benefits and rewards. But don’t lose yourself spending on your cards unwisely no matter how tempting it can be.

And always remember to choose the right type of card for your lifestyle. Learn how to choose the right credit card over here.

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