During the last few decades, credit cards and debit cards have emerged as the most preferred mode of payment for people all over the world. Due to their convenience, availability and user-friendly nature, these cards are highly useful for all spending needs.
Now let us see how credit cards and debit cards differ:
• How each card works: With a credit card, you can simply visit a real or online store, pick out the items you need and complete the purchase by paying with the card. You need not worry about the rate of the item while purchasing. After the purchase, the store merchant will be paid by your credit card company. You have to make the payment to the company after you receive a bill from them regarding the purchase.
The working of a debit card is almost similar – making a purchase using the card. But since the debit card is tied to your checking account, the store merchant is paid with the money that is already present in your account. To put it simply, using a debit card involves transferring funds from your account to the merchant.
• The money factor: While making purchases with a credit card, you need not have adequate money available right then to pay for the purchase. There will be a sufficient period of around 30 days to make your payment.
On the other hand, while spending using a debit card, you need to have adequate funds in your account to complete the purchase. If the account does not have enough funds, you cannot use the card.
• Debt risk: With a credit card, it is all too easy to excessively use it and incur huge balances. When coupled with the finance charges and other fees, these balances may become large debts that can be difficult to pay off.
With a debit card, you can rest assured that you already have enough money in your account for the payment. As a result, you need not worry about other bills or charges in future. In short, using a debit card is as good as a cash purchase, but without the hassle of carrying around cash.
• What happens during a theft? : Did you know that debit cards face a higher risk of fraudulent misuse? Since debit card is connected to your checking account, its spending limit is the minimum balance amount required in your account. For instance, consider you have $1000 in your account that needs a minimum balance of $10. If the card gets stolen, the thief can easily withdraw $990 and leave you just $10. Although you may alert the authorities, the process can drag on, leaving you with no funds to pay your daily expenses.
However, credit card has a set ‘credit limit’ – the maximum amount you can charge to the card. That means even if the card gets stolen, the thief will not be able to spend more than this credit limit. In addition, although the investigation process will take time, the money in your bank remains safe.
Debates about the pros and cons of these two cards are likely to go on. A credit card demands more responsible use, more control over impulsive purchases and more ability to pay up the balances every month. A debit card only allows you to spend the money you already have and still provides the convenience of a credit card. Before deciding on a credit card or debit card, conduct a thorough research of all available options offered online or through banks. With the staggering variety of options, you are sure to find one that suits your specific needs. No matter what card you choose, it is all a matter of individual need and personal opinion.