Nowadays, more and more people resort to buying and paying for things solely via card. Likewise, most people tend to make a purchase with various cards, but the differences usually fall on either debit or credit cards. A person can easily get mixed up when it comes to which card to use, plus when you are not quite familiar with the way payments are being processed, it can be hard to differentiate which card is better at the given moment. As this can cause numerous headache-inducing outcomes, it’s your common citizen’s duty to have a clear insight on the differences between debit and credit cards, as well as with the pros and cons. Hence, here is a detailed text to help you with that matter.
- Debit Card 101
The most important thing to note is that a debit card is used for standard payments as all payments are deducted directly from your bank account. To make any purchase you need to have money in your bank account unlike with a credit card. What is more, you would have a limited number of funds on your debit card as it is bound to your account and you can’t go over that amount unless your bank or financial institution has a pre-arranged agreement with you.
- Advantages of a Debit Card
Debit cards can be used anywhere for almost any purpose as long as the funds on the card are yours. The money is directly debited from your bank account to make a purchase. You are able to avoid debt and you are protected against numerous frauds. The general usage is free, you may only have standard fees which include overdraft fees, fees using your PIN during the transaction, and out-of-network ATM fees. Hence, if you are looking for an affordable payment solution, using a debit card is the way to go. You can use customizable and flexible merchant services with your debit card as well, which will allow you to secure your front-end payments from ATMs, POS devices, switching, etc. When you have that many fast and safe customizable and affordable solutions for accepting payments, you can rest assured everything will turn out meticulously.
- Disadvantages of a Debit Card
Even though debit cards don’t have annual fees, you will still have to pay a lot of other fees such as monthly maintenance fees, overdraft fees, returned item fees, and even foreign ATM fees if you use the debit card in a foreign country. Furthermore, with a debit card, you cannot build credit which means that you won’t be able to demonstrate to a lender that you are an adequate and responsible user. When you use a debit card you won’t have the chance to build a credit history which may et vital to you if you wish to borrow a large amount of money from the bank in the future or get a loan and similar.
- Credit Card 101
A credit card is a card that is issued by your bank or some other financial institution and offers a line of credit that lets you borrow funds to make various purchases. Typically, you get cash in advance and when you use the card you agree to repay to the credit card company the amount your borrowed plus any additional interests according to the institution’s terms and regulations.
- Advantages of a Credit Card
Probably the most beneficial thing about using a credit card is the ability to build a credit history. For instance, when you use the credit card to pay your build or pay off the balance every month, you show how diligent and responsible you are with your returns, which automatically builds up your credits score. Another pro is that you can use the credit card to pay for something when you don’t have actually cash on hand, and then pay in rates. Also, when you use a credit card you have a chance to earn certain points and rewards which can help you save money in the future. And of course, you can pay with your credit card anywhere around the globe.
- Disadvantages of a Credit Card
The biggest disadvantage of credit cards is the interest of unpaid balances. As you are usually not limited to making purchases and if you don’t pay your balances in full and on time at the end of each billing cycle, you would be charged extra interest on the purchase you made. That interest can easily pile up, so the high-interest rates could lead you into debt and in time this could harm your credit rating. In addition, you may be charged additional fees for late payments, balance transfers, cash advance fees, and foreign transaction fees.
In the end, make sure that you choose the card that will suit your needs. Whether you would opt for a debit or credit card will largely depend on your spending habits and financial plans. If you are comfortable and able to pay your balance on time and in full each month, then go for a credit card. In the contrast, if you want to have a card for daily purchases and low fees, then a debit card is for you.
Mike is an Australian business consulting specialist. He’s working with companies that outsource their IT maintenance. He often writes about technology, business and marketing and is a regular contributor on several websites.