ELI 5: Credit and debit card differences

7 comments

1. in simple term, using credit card will get you free points that you can use. in comparison, using debit card doesn`t get you anything.
   paying annual fee might give you return more than what you pay depending on how much benefit you can get from the card (hotel discount, restaurant privilege, airport lounge, ETC). but if you are not heavy spender you can always opt for free annual credit card such as Amazon Gold, Rakuten card, or JCB W. Make sure you know the most efficient point that you want to use and decide which credit card you want to choose.

   the ground rule if you start to use credit card is to always pay 100% of your bill on time and avoid credit card debt / Ribo Barai / pay later that will cost you interest. as long as you abide by this rule then it`ll give you benefit instead of just paying straight with debit card.

2. Are you sure you chosed the rigth sub? Because you repeat yourself about hefty comissions and its cost but in japan there is surplus of credit offer ; there is no cost. Most cards have 0% comission for single payments, no yearly fees forever. You always have premium cards with yearly fee but I never had one. Even more, they give you thousands for joining and free money with points.

   Using credit card instead of debit (no installments and paying full balance) in japan is 0% cost, no comission, no maintenance fees for life, and receiving free money and discounts and perks. There is no reasonnto use debit at all in japan.

   Plus, you have more benefits of using others money for free instead of yours: security, control of timing of your payments, an intermediary to claim refunds or rollback fraudulent purchases, insurance, etc.

   Ive had more than 60 credit cards in japan (I collect their designs), I never in my life have paid a single yen in absolutely anything related to them, no maintenance no interest no fees at all. never made a purchase in installments (nor revo) and I dont spend money I dont have so I never hd any issues with them.

3. In EU, there are better protections against fraud and you can get your money back quickly after reporting fraud. This is not true in all countries.

   Or, what if, the money never left your account in the first place and you wouldn’t have to fight to get it back?

   In Japan, when you set your first CC to directly draw the full previous billing cycle’s usage from your account, and never use Revolving or Partial payment plans, your CC will never have any fees. Gold and premium cards can have yearly fees but those are always mentioned up front.

   Now that we have established that, think about the CC company (not bank) being a “buffer” between your purchase and your own money. If somebody misuses your CREDIT card, you have up to almost 2 months to notice it and report the fraud to your CC company.

   With debit card your money is already gone, and you need to get it back. In the meanwhile, this money is unavailable to you. Imagine the situation where you are defrauded on the 24th, your balance drops to near zero, and your landlord has autowithdrawal set to 25th for you rent.

   Landlord doesn’t care that somebody else took your goodies and now you’re unable to pay rent.

   So why not have up to 2 months worth of buffer with an institution that spends a lot of money every month to guard your spending so that they can be paid? And it’s free to you.

   Now, using CC for as much as possible to maximize points (my monthly usage usually grants me 3000-6000JPY of free shopping at amazon.co.jp), and guard yourself against fraud, means you will have to have some ability in fiscal planning and keeping your spending under control. For people who can’t do that, probably the best way is to just use debit card so it’s easier to keep track of their available money.

   For everybody else, there are apps, keeping mental tally, excel sheets etc…

4. Exactly as above, what is “hefty commission” of credit card, there is no fee unless you couldn’t pay back the loan next month.

   Think from business standpoint, credit card is a loan business. Issue bank pays for stuffs you buy even if your account balance does not have enough money at the moment, in return you need to pay back the bank in installments on following months. Issue bank takes extra interest rate for every later than next month payment from you. Good point: If you manage to pay down, it proves you have sustainable income, thus build up your financial credit score which debit card doesn’t. Credit card frills with rewards and bonus. Bad point: Buy now pay later mindset, if you can’t control your finance you are exactly the income that issue bank is looking for. By the way this is common knowledge regardless of country.

5. As a fellow European (Germany) I can understand your scepticism.

   Credit Card = monthly/yearly fees, debt and high interest rates

   But it’s not like that. Most standard cards don’t have monthly/yearly fees. And as long as you pay off your credit card on time there won’t be interest on it, **no fees.**

   Therefore, you can **enjoy the benefits of credit cards without having to pay any fees etc..** Of course, the benefits in Japan are not as good as in the US (is what I heard) but if you spend the money anyways and can get something in return for it, like points or miles or discounts etc. why not take it?

   Then there are also more premium credit cards, like gold or platinum etc. which often offer better benefits but may require you to spend x amount per year and/or come with monthly/yearly (membership) fees.

6. Debit Card (Visa, Mastercard, JCB etc.) up sides:

   * Instantly withdraws from bank account
   * Has similar fraud protections as other credit cards of the same brand (Visa etc)
   * Recently, some debit cards offer points similar to credit cards (Sumishin SBI Net Bank’s Mastercard debit offers 0.8% cash back with 0 fees)
   * In most cases you can not be rejected. If you have a bank account you can get a debit card for that account. (But some banks, like Yucho, have weird rules for foreigners, so some people get rejected.)

   Debit Card down sides:

   * If you have a fraudulent transaction, it takes a month or so for Visa etc. to reimburse you, so you will lose the money for a month.
   * You can only spend how much you have, and you can’t split the payment into smaller monthly payments.
   * You can’t create a “Family Card” or an “ETC Card” which means you must stop and pay cash on the highways, and you must physically hand your debit card to family if you want to let them use it.
   * You can’t use at a gas station.
   * You can’t use for online subscriptions (Netflix, Amazon Prime, etc.)

   Credit Card up sides:

   * You get points even on the 0 fee cards.
   * You can spend money you don’t have and spread the payments over many months. (ie. my credit card will let me split into 2 payments for free, if I buy something for 200,000 yen on March 10th, I will pay 100,000 on April 27th and 100,000 on May 27th.)
   * Fraud protection can delete the transaction BEFORE you actually pay the money, because there is a 1-2 month delay always.
   * You can use the ETC gates on highways. No stopping.
   * You can buy gasoline without going inside the building.
   * You can sign up for Netflix etc.
   * You can create a second card with a different number that is attached to your card, this is used for “Family Card” and you can see which card bought which item (and track payments easier).
   * You will build “credit history” which will make it easier for you to get a house loan later in life.
   * Some credit cards with fees have good insurance for traveling. So if you ever travel a lot, then you don’t have to pay for travel insurance. I don’t know any free cards that have this, but maybe they exist, I don’t know.
   * Most cards are 0 fees. You pay nothing, but you get all of the benefits above.

   Credit Card down sides:

   * If you choose a card with a high yearly fee, you pay fees. (Most cards are free though)
   * If you choose the “auto-ribo” (“automatic revolving payments”) feature you will pay fees.
   * If you split payments into 3 or more payments (for most cards they let you split to 2 for free), you will pay a fee. (This is never automatic)
   * Some credit cards will automatically turn on “auto-ribo” and you need to go in and turn it off to avoid fees.
   * It usually takes 2-3 business days until your purchase will show up in your credit card’s website/app, so you can easily lose track of how much money you are spending. I use Money Forward to track my spending, but it is about 2-3 day lag for Credit Cards.
   * It requires credit history in order to even GET one. Foreigners usually don’t have this, so we need to build credit history with expensive fee deposit-based credit cards. Deposit-based credit cards don’t require credit history but will build credit history… however, they have a yearly fee usually, and a deposit to cover your usage.

7. Also, the ETC that people mention is important if you ever plan to drive. Driving without ETC often costs more (for example, city expressways like Hanshin in Osaka/Kobe and Shutoko in Tokyo will charge an expensive flat fee for cash or card payment at a gate vs distance-based for ETC) and an increasing number of toll gates are becoming ETC-only (so you can’t even enter or exit at certain places if you don’t have an ETC card).