It’s easy to get confused between a debit and a credit card. While most people have heard about them, people are often confused about how they work. Let’s try to understand how they work:
Debit cards are an instrument using which you can withdraw the cash in your savings account. Debit cards can also be used to make direct payments at retail counters through electronic payment. The cardholder can immediately transfer funds to the seller and settle the payments,
Since debit cards are linked to your savings bank account thus you need to maintain a minimum balance to access cash or make transactions through debit cards.
A credit card is also an instrument that is issued by the credit card issuer to help cardholders borrow credit to make payments. When the cardholder swipes the credit card, the issuing bank will settle the payments on behalf of the cardholder to the seller. So, the cardholder can borrow money from the bank in the form of a cash advance up to a certain credit limit. The borrowed money must be repaid within the due date else the bank would start charging interest on the outstanding amount.
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Debit card is an excellent way to control your urge to spend or go overboard with your money. Since debit cards are linked to your bank savings account, you can only use the money that is deposited in your account. Therefore you can limit your expenses and thus the money can be spent on necessities only.
A Debit card can prove to be the most beneficial tool for people who forget their due dates or simply forget to pay their bills or misplace them. Individuals can make use of credit card to save them from paying finance charges in case of delayed payment. Also, debit card saves you from paying a joining fee or annual fee which is usually incurred on maintaining a credit card.
Credit cards can create huge interest burden if its payment is delayed. A Cardholder can fall into a debt trap if they are not able to repay the borrowed amount at the end of their billing cycle. So, to keep away from such instances, you can opt for debit card payments. The Debit card helps you to keep away from unnecessary debt and secures your finances.
A Debit card is the best ways to withdraw cash from ATM. Though you can withdraw cash using your credit card as well, it is best if you do not use your credit card for such purposes. Using credit cards to avail cash can lead to huge interest cost as the interest is charged from the moment the cash is dispensed. Additionally, you may also have to pay certain transaction cost as well.
Credit cards are the best tool to make payments as the credit card issuer allows borrowing a certain amount at no interest cost for a certain period. Interest is charged if the person fails to pay the due after the due date. So, if you have a low account balance or you are in an emergency when you need money urgently you can make use of your credit card.
If you have sufficient income and you are sure that the money spends on your credit card will not add up as your burden then you can use your credit card to make payments. You can enjoy an interest-free period within which you must repay the money you have borrowed. Using a credit card can help you improve your credit score and allow you to earn reward points and discounts.
Credit card payments are a good way to build a credit history and thus improve your credit score. A Credit score is an important parameter in availing bank loans at cheaper rates. You can make a positive impact on your credit score by judiciously using your credit card. For this, you have to pay your bills regularly without delay and maintain a good credit utilization ratio i.e. not spending above 30% of the credit limit.
Most of the commercial banks give you the facility of creating a virtual credit card using your existing credit limit on your physical credit card. VCC helps to avoid cases of online fraud and hacking and maintains the privacy of your data.
These are the scenarios when people opt to use credit cards and debit card. You can also use both at the same time. Using both the cards in the right way is the key to manage your finances.
See Also: How to Make Credit Card Payment?
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