The financial system has changed drastically over the years. Nowadays, cash has started to become obsolete, as more and more people rely on the card system for payment and rightly so. Payment is much more convenient and secures through a card system, and your money is safe and sound. Moreover, you can make payments of huge sum using these cards. Doing so with cash might have been a tad difficult.
There has been an age-old debate though, trying to finalize which of the card system is better for payment, a debit or a credit card. Both are pieces of plastic with the necessary chip that can be used for the transaction. The question is which one to use where and what are the advantages of one over the other. A detailed description has been given below so that if you are waiting to make that choice, you will be helped.
Credit Card vs. Debit Card- the basics
It is essential to know which card draws the money from where to make the payment. A debit card is a card which draws money from an existing savings account in a bank and makes the payment immediately. You need to have the money in your account to make the payment, or it will be declined, or you will have the chances of over drafting. A credit card, instead, is like taking a loan in buying something.
The money is taken from the credit card company, and they send you a bill at the end of the month. You have the option to repay the whole amount or pay a minimum value, but you will be charged interest on the remaining amount. Thus, it is more convenient unless you tend to spend a lot, owing to which you may have a huge debt on your head.
Debit vs Credit card- protection and security
There is no denying the fact that any card system of payment is much more reliable than cash anyway as the chances of fraud are very less. However, with respect to the two cards, also, protection and security are varied. For example, if you lose your credit card and inform the company immediately, all you have to do is pay a minimum charge, and your account will be blocked.
Sometimes, the company waivers that off as well. For a debit card, for a similar scenario, you have to report the theft immediately. Failing to do so might lead to fines of a higher amount. Thus, you need to be on your toes and do a proper background check before you decide on one.
Determining when to use your debit card and credit card for maximum advantage
You must understand when to use credit and when to use a debit card. If theft and data breaches are your main concern, a credit card is more secure. There are additional perks in credit cards like cashback offers and flight miles and discounts which are generally not present. Your credit score will also be improved.
On the other hand, if you are trying to make payments only from the amount you already have in your account and nothing more, a debit card is best suited for you. A debit card can also double as an ATM card, so if you want to withdraw cash, it is useful. Lastly, if your credit score has gone for a toss, a debit card is much more useful than a credit card.
How Debit Card works
Like mentioned before, a debit card withdraws money from your linked savings account and pays, leading to an immediate reduction in the amount. Thus, only if you have that stipulated amount in the account, you can go ahead with the transaction.
Thus, there is no chance of going into debt, and you have control over your finances. A debit card also doubles as an ATM card, and if you are in need of hard cash, you can go to an ATM machine and withdraw according to your needs. It is operated mainly through a unique pin and is relatively fast.
How Credit Card works
Credit card mainly works on the principle of loans but in a broader sense of the term. You need not have the amount in your bank account to make the payment. Instead, the money will be paid by the credit card company. After an assorted payment of similar technique over the month, a bill is generated by the company and sent to you. Even then, you are not required to pay the whole amount at once.
Clear the minimum rate and then pay the rest according to your convenience. However, interest is levied on it, so the later the payment, more will be the final amount. It is useful if you are good with planning your finances but has an equal chance of spiraling you down the wrong road.
Debit vs. Credit Card- which is better?
As it has become clear from the article mentioned above, there are no clear favourite winners between credit and debit cards. Both have advantages and disadvantages. It is all about how much money you require and how you spend it along with associated planning.
To conclude, you must be smart in making a choice. You know yourself better than anyone else and depending on your spending habits and situation, make an informed decision.