Most of us use some type of plastic money, either in the form of debit cards or credit cards or both. These cards offer easy ways to access money, without the need of bulky cheque-books or heavy wallets. However, there are remarkable differences between these cards. Learning the pros and cons of credit and debit cards would help cardholders better use the same. Read through this ArthaYantra post to get into the details.
What Are Debit Cards?
Debit cards offer extremely convenient means to access money through ATMs and swiping machines at merchant outlets. They are linked to the bank account of the card holder and are ideal for hassle-free usage. Any purchase made through debit card automatically deducts the same from the corresponding bank account. The card holder also receives SMS and email alerts to keep a track on the spending.
What Are Credit Cards?
Credit cards work as mini loans. They allow purchases without the need of cash in the hand or balance in the card holder’s account. But, the bill for the used amount would be generated the next month and the card user should pay the bill amount before the due date. Else, it would lead to late payment charges, interest accumulation, and bad credit score.
Basic Differences Between Debit and Credit Cards
Below are some basic differences between debit and credit cards.
- A debit card is linked to the bank account while the credit card is linked to the bank that issued the card.
- With debit cards, one can only spend within the financial abilities i.e the amount available in the concerned account can only be used. When it comes to credit cards, banks pay for all the transactions made by the user.
- No interest gets accumulated with debit card usage as no money is borrowed. In the case of credit cards, monthly credit card bill would be generated by the bank and the amount has to be paid before the due date to avoid additional charges.
- On some debit cards, POS limit and cash withdrawal are assigned on a daily basis. The credit limit is assigned on monthly basis and the user cannot use more than that with credit cards.
- Debit card usage cannot alter credit score, whereas the credit score gets negatively affected when the credit card holder consistently fails to clear bills within the due date.
- Debit cards are easily approved by the banks along with the bank account. Credit cards are approved by the banks after considering many factors like credit score, income, etc.
- Cash withdrawal from ATMs is easy with debit cards and is hassle-free.Credit cards allow cash withdrawal too, but high-interest rates are charged from the time of withdrawal.
A lot of people feel secure to use a debit card, compared to credit card due to enhanced security. Credit cards turn handy during an emergency but it is important to analyze the number of credit cards to carry and the ways to use them to avoid getting into the vicious credit card debt cycle.