We all know that plastic is a much safer, easier way to spend money than carrying around mounds of cash. But banking is complicated and choosing which type of card to use can send some of us into a flat panic. Essentially credit, debit and reloadable prepaid cards offer the same convenience, and are accepted at most of the same places. The main difference if where the money comes from. In this article, we’re going to uncover basic definitions, and benefits and drawbacks of each type of card.

What is a credit card?

A credit card is a card issued by a bank that allows you to purchase goods or services in-store or online on credit. You can also use your credit card to withdraw cash from an ATM. You will be given a limit of what you can spend on your credit card based on your earnings and credit history.

If you do not pay off your balance in full at the end of each month – the 30 day interest free period – your bank will charge you interest on the amount remaining on your account.

  • Benefits: If you’re able to keep your expenses in check a credit card offers great flexibility and is often linked to different rewards programmes. You’re also able to build a credit rating which is important to help you get the best interest rate on loans.
  • Drawbacks: Many consumers find themselves running into trouble with a credit card, as they lose track of spending and struggle to repay their debt. Annual, hidden and interest costs can quickly add up, and if you miss payments you credit rating will suffer.

What is a debit card?

Debit cards – also known as cheque cards – are associated with your savings or cheque bank account. When you make a purchase, usually with a pin number, the money is withdrawn from your bank account within days. A debit card doesn’t allow you to go into debt, except a small negative balance if you have chosen an overdraft facility. Debit cards usually have a daily limit, so it may be difficult to make very large purchases with it.

  • Benefits: If you have a tendency to overspend, a debit card is a safer option, as you can only spend what you have. They generally have low or no fees, and are also linked to rewards programmes.
  • Drawbacks: You’ll acquire high overdraft fees if you choose this option, and overdraw on your account, so you’ll have to constantly be aware of your balance. You also won’t be able to build a credit rating.

What is a prepaid reloadable card?

Prepaid cards are the fastest growing non-cash method of payment. A prepaid card is a payment card that is loaded with money by you or someone else. It looks like any normal credit or debit card, with a card number, signature strip and company branding, however unlike credit cards which provide you with a line of credit, you can’t borrow money with a prepaid card – you can only spend the money that you have loaded onto it. Prepaid cards are not linked to a particular bank account, and you don’t need to go through rigorous credit checks in order to qualify for one.

  • Benefits: Consumers favour prepaid cards as their bank charges are often less than traditional bank accounts, and they are a great way to curb spending. They also give you the flexibility of carrying plastic without a full blown bank account.
  • Drawbacks: You won’t be able to build a credit rating, and interest on positive balances is lower than other debit cards. These cards aren’t accepted in all instances, for example, when a hotel asks you for your card number as security when you check in.

If you want to find out more about prepaid cards and how they can help you in your budgeting pursuit have a look at a local South African vendor www.reloadmobilemoney.co.za