The Buyt Desk
Debit cards might be good to have a grip on the finances but in the long term a credit card is good to manage and balance the expenditures . One of the biggest advantages of credit cards is that it helps in maintaning a good credit score which in return makes it easy to secure any loans in future. Method of payment is a personal choice while some choose hard cash, some prefer apps like GPay, PhonePe and some through debit or credit card. Each has its own pros and cons.
What Is a Debit Card?
A debit card is nothing but plastic cash. It uses the money from the bank account of the card holder to make payments. One need not carry hard cash around for safety reasons but still make payments using a debit card.
What Is a Credit Card?
A credit card does not use the money of the card holder but loans the money from a lender, usually the bank that provides the card. Once the payment is made through credit card, the card holder owes that amount to the bank and credit is interest free for a small duration of time. This amount needs to be credited back to the lender in a specified time period else late fees and interest will be charged.
Credit Cards vs. Debit Cards
Do not go by looks because credit cards and debit cards look identical and have 16-digit card numbers, magnetic strips, EMV chips and expiration dates printed on them. While making payments both are equally convenient and follow the same procedures. But money is drawn from different sources – Credit card is a form of loan to the card issuer while debit cards draw from the card holder’s bank account. In India, most of the salaried people will have a credit card and every account holder has a debit card. When you want to use your money use a debit card and want to access line of credit use credit card. Use credit cards for better consumer protections against fraud. Debit card charges some annual maintenance fees while credit card charges hefty late fees and interest when bill is not paid on time.
Five benefits of Using Credit Cards over debit cards
1. Easy access to credit – Easy access to credit is the principal benefit of a credit card. Deferred payment ideology is used by credit cards where the card holder gets to make payments through the card now and pay for it later without disturbing the current bank balance. Credit cards are the easiest way to get interest free credit for a short duration of time. Debit cards do not provide any loan.
2. EMI facility – Payment made through credit cards can also choose EMI facility without submerging the funds in the savings account. It is an option where the payment can be paid off in calculated monthly installments and not lump sum. And this is way cheaper than a small personal loan. Electronics like TV, refrigerator, washing machine are usually purchased in EMI. This facility is not available in debit cards.
3. Incentives, Reward points and offers – On every penny spent through credit card, few points are earned. On making payment at some specified stores, the reward points are more than usual. The points earned can be redeemed for some articles or merchandise or travel tickets or movie tickets or restaurant gift cards. These points evaluate to nearly 2-3% of the amount spent. Some credit cards have bonuses and offers. Cash back offers are a major attraction of credit cards. Frequent-Flyer Miles credit cards offer miles per amount spent through cards. These miles can be used to purchase air tickets.
4. Build credit history – Usage of credit card is echoed on the credit report of the card holder. If a card is used well without late payments, the chances of a good credit score increases. This is how credit cards give the chance to build up a line of credit. Credit score of a potential loan applicant is verified by banks and financial institutions before loan approval. Credit cards will help the card holder to build credit score, so that he/she can get better loans at lower rates of interest. This is not possible with debit cards.
5. Warranty and purchase protections – Payments made through credit cards are protected and insured. Insurance and warranties of items bought through credit card may get extended benefits exceeding the manufacturer’s warranty. Also additional protection is offered for card purchases in the form of insurance for things that might be damaged, lost or stolen. The credit card statement is a proof against fraud.
