Get to know about credit cards vs debit cards: which is better, the difference between credit and debit cards, how to get one and which one suits your financial decisions.
The differences between credit and debit cards are that credit cards are often associated with high-interest rates and debt that can be difficult to pay off and debit cards are linked directly to your bank account. Here is how these two cards operate on different principles and what you should consider when selecting one over the other.
Difference Between Credit and Debit Card: An Overview
A debit card allows you to use the money from your bank account. No borrowing or interest is involved. Here, you can only spend money that you already have. Essentially, a debit card gives you immediate access to funds in your checking account.
On the other hand, with credit cards, you must pay back what you borrow. By using a credit card, it’s possible to make big purchases without having enough cash in your account. However, this may result in high-interest rates over time if not paid off immediately.
Credit Card Vs. Debit Card: Which One Is Better?
A credit card is a payment card that allows users to pay for purchases using revolving funds from a bank account. However, a debit card is a pre-paid card that deducts money directly from a checking or savings account at the point of sale. When it comes to security, credit cards have the reputation of providing top-notch protection, although the gap has been increasingly reduced.
On the other hand, most credit cards no longer require maintenance fees thus making it more convenient. However, using credit cards runs the risk of spending more than you need. Thus, the better option for you solely depends on the level of security you are looking for as well as your financial practices.
What Is a Credit Card?
A credit card, also known as a charge card, is a payment card issued to users by a financial institution. The issuer of a credit card grants a line of credit to the consumer, from which they can borrow money for payment to a merchant or as cash at ATMs. A credit card is different from debit cards, linked directly to an account, and does not involve borrowing money from a bank or another financial institution.
Credit cards are typically subject to interest charges if paid in full within 12 months. To avoid paying interest on their purchases, merchants may accept payments through debit cards or electronic funds transfers.
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What are the pros and cons of having a credit card?
The biggest downside of credit cards is that using a credit card means spending money you haven’t yet earned. And paying off those balances isn’t always easy since credit cards often have high-interest rates compared to other forms of debt such as mortgages.
If you fail to pay your bill in full every month, most credit cards tack on hefty late fees or stop your rewards points from accruing until your balance is paid in full. However, there are some upsides to using a credit card. They typically offer better fraud protection than debit cards, which can be especially important when travelling internationally. Some credit cards also offer perks like cash back or miles that can be redeemed for travel discounts.
Pros Of Having a Credit Card?
- It allows making big purchases to pay off the balance over time.
- If you don’t have enough money saved up for a big purchase, using a credit card to finance it allows you more time to save up for it.
- If there’s an emergency and your bank account is suddenly empty, having a credit card can come in handy you won’t have to worry about paying rent or buying groceries until your next paycheck arrives.
- Reward points earned can be used to purchase different items and unlock more benefits. If used properly your credit limit can be increased significantly.
Cons Of Having a Credit Card?
- You spend more than you can afford
- If you max out your credit card, it could harm your credit score.
- If you are using a credit card with an interest rate above 10 per cent, doing so would be detrimental to your financial goals.
- Hidden costs, credit card fraud, minimum due trap, and bad credit score can lead to multiple problems and are the biggest cons of having a credit card.
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What Is a Debit Card?
A debit card provides you with a convenient way to pay for goods or services. The primary difference between a debit card and a credit card is that you’re spending money directly from your bank account when you use your debit card. If you don’t have enough money in your account, your transaction will be declined. Unlike credit cards, which give consumers access to loans they may not have otherwise qualified for, debit cards allow customers to spend their money more efficiently.
What are the pros and cons of having a debit card?
The difference between credit and debit cards lies in the ways they process transactions. Every time you swipe your debit card, you immediately take money out of your bank account. A credit card works differently. There’s no immediate transfer of funds, but you do have to pay interest on what you spend if you don’t pay off your balance each month. Still, in some cases—such as when travelling internationally—having a credit card can be much more convenient than having cash.
Pros Of Having a Debit Card?
- The money you spend comes directly from your bank account
- Banks offer debit cards with rewards programs or even free checks
- Good tools for budgeting
Cons of Having a Debit Card?
- Money is withdrawn from your checking account immediately
- There’s no float time when you can buy now but pay later
- If you don’t have enough money in your account to cover purchases, they will likely be declined.
How To Apply For A Debit Card?
How To Apply For A Credit Card?