Debit Cards vs Credit Cards

Perhaps everyone is aware of plastic money these days. Yes, we are talking about debit cards and credit cards which are often used by people in their day to day life. But do we actually know where to use these cards to reap their maximum benefits without being overcharged or getting duped. Your answer may probably be yes or no; not a problem. Let’s check out the advantages, potential risks and uses of debit and credit cards to make their optimum utilization.

What’s the Basic Difference?  

Debit cards are directly linked to your current bank account in order that the money you spend is automatically deducted from your account. You can also use these cards to withdraw cash from ATMs. They not only provide an easy substitute to cash, but also let you to manage your funds accordingly. You can your debit card to pay your routine bills and online shopping, while keeping a track of your expenses via your monthly account statement. The best part is your account balance goes down with each debit card transaction which means you’ll probably not overspend. Some banks also offer “overdraft protection” which enables you to exceed your balance. However, you have to pay interest, or might be extra fees on the money you borrow from your overdraft account.

On the other hand, credit cards are not linked to your current account. They essentially offer a credit facility that enables you to buy things immediately, up to a pre-arranged line of credit, with the option to pay the money back later. The amount of every transaction is added to your credit card account and you get a monthly statement. If you pay the money within the grace period, which is generally 15 to 45 days, you can avoid paying any interest or extra fees. But in case, you don’t pay the amount, you will be charged a particular amount of interest (as mentioned by the card issuer at the time of issuing the card) on it. If you continuously fail to pay the dues, the amount quickly adds up. So, it is best to pay off the balance as soon as possible to avoid interest.

Advantages

• Undoubtedly both debit cards and credit cards offer convenience. You need not to have cash every time to purchase anything.
• If you use your debit cards rationally, you can avoid interest or overdraft charges.
• Using credit cards offer you financial flexibility which means you can make larger purchases or consolidate debt and pay for them later on, in installments that suit your budget.
• In fact, most of the credit cards give the option to earn rewards on purchases made and sometimes, they even offer cash back or discounts.
• Credit cards let you to enjoy safe and secure online shopping as they have rigid limits to fraud liability.
• If you pay your credit card dues on time, your credit score will go up and you may qualify for lower interest rates on purchases.

Potential Risks

• While using debit cards, you must be careful about not overspending than what is available in your bank account. Failing to do so, will let you bear unnecessary overdraft charges.
• One should be careful while using debit cards because the money charged is directly withdrawn from your account, and fraud liability is basically on the account holder.
• Keeping debit card carefully is as important as keeping cash. In case you lost your debit card, you need to inform your bank immediately to avert unauthorized access to your current account.
• However, while using credit cards, you must be aware of your expenses and the fact that you’ve to pay it back, to avoid getting into more debt than what you can actually manage.
• To avoid unnecessary interest and fees, you must pay your dues within the grace period. Or if you wish to pay back in installments, it must be paid in time so as to avoid hefty interest fees.

How to Use Debit Cards and Credit Cards?

You must keep a track of your account statement (for debit card) and all the transactions to avoid overdraft fees. If you are aware of your account balance, you’ll try to avert more expenses or transactions to maintain some balance in your account. Or else, you can coordinate with your bank to link your checking account to a savings account or line of credit. Though your bank may charge for such services, they are considerably less than the overdraft fees.

Credit cards give you protection against billing errors. In some cases, you can also withhold payment on defective goods or until they get replaced. This is why experts usually recommend credit cards against cash, cheques or debit cards. Before opting for debit card or credit card, the card seeker must check all the details regarding overdraft, line of credit, interest charges, etc, to steer clear of any preconceived notion. Use your card accordingly as per your requirement and the stated limits.

Conclusion

Debit cards are great especially for small and daily purchases. However, they are regarded less advantageous than credit cards for major purchases or online shopping due to more restrictions in case of unauthorized transactions or disputes. Credit cards are especially useful while buying certain things when your bank account balance is low, or to take benefit of the no-interest grace period. You must keep in mind that whatever card you choose, it must make your spending experience more worthwhile.