We often use both the cards and possess at least one of them. Both contain 16 digit card numbers on them, expiration dates, and Personal Identification Number (PIN) and thatâ€™s it. Thatâ€™s the only similarity between credit and debit cards. Other than that we will discuss all that is different between these cards.
Since, we use them on a daily basis, we need to understand when debit card preferred is and vice versa.
Table of Contents
Understand when to use Credit Card and Debit Card.
On the basis of Definition
When it comes to debit cards, you will be using your own savings and not from the banks. So, letâ€™s say you have Rs. 5,000 in your account. And you want to spend Rs. 6,000. Well, in that case, your transaction will not be completed. These cards are a great substitute for carrying cash. Learn about some dos and donâ€™ts while taking/receiving cash.
In this case, though, you donâ€™t need a minimum amount to make the transaction. In fact, you donâ€™t need any amount. It is basically like taking a loan from the bank. For which, in the future, you promise you will pay the interest. These cards also have much usability but it should be used wisely, when only in need.
The maximum limit is the amount held by an individual in his/her account. As explained earlier, you canâ€™t make transactions that exceed your savings. If still, you want to make payments, then youâ€™d be charged for making such transactions.
This amount is set by the credit card provider firm. And it varies from company to company. Also, your previous records of credit card payments & your income determine the maximum amount for an individual.
Extra fee charged
You will be charged an overdraft fee if you spend more money than what is in your bank account. This fee is to cover the cost of the transaction. This fee varies by a financial institution and can be incurred for each transaction going over the available account balance.
The only fee that is charged is the interest rate on the loan. And this interest rate is usually very high. So, we suggest you pay your bill in full each month to avoid interest fees completely.
- In the case youâ€™re shopping online, credit card payments are the best option to avail out of the available. If there is a fraud in the payment, then you can detect it and reverse it then and there. In other words, you personally are not liable for unauthorized charges.
- If you wish to make large purchases or electronic purchases, then these credit cards offer their own warranty protection. These warranties provide extra coverage, which is really useful in the case of electronics, appliances, or other large products.
- While traveling it is often not advised to carry huge amounts in cash. So, credit cards are better in this case. If someone steals your card number or you accidentally use a shady ATM in some tourist trap which is designed to harvest card data. Then, you can put a stop to it without being liable to pay extra charges.
- In addition to this, if you use credit cards while youâ€™re traveling, then you are able to get many additional advantages. These are discounts on rental cars, frequent flyer miles, or cashback on purchases.
- Last but not least, many hotels, airlines, and other travel agencies use the services of credit cards only. So, if you opt for debit cards or other means of payment, then there is a risk that these transactions may be put on hold.
- You can earn some amount if you use this type of transaction. It could be in the form of cashback (1-5%) or points (which you can redeem for making further purchases).
- If you want to carry out your daily purchases, then this is the best way to make your payments. Whether it be groceries, gas, and coffee, and so on.
- The payments made using the services of debit cards are very fast. So, if you need to make payments urgently, then this option is the best option at this time.
- This type of payment improves your financial position overall. As you wonâ€™t have to incur overdraft fees and interest rates if you spend whatâ€™s your financial budget. In other words, it will keep your spending habits in check. You can use it for your own luxuries and personal purchases, as long as youâ€™re within your budget.
- In addition to this, if youâ€™re recovering from poor money management habits or watching your finances, then this is perfect for you. So, if you have any of the following issues, then it is suggested you go for a bank that offers a zero liability policy on your debit account. This way, you can budget on your transactions and still be protected in case your credit card is stolen.
- In case you want flat transactions abroad, those credit cards work smoothly. But if you want actual currency in another country, then your best bet is using a debit card. In case you use it in the ATM, then youâ€™d get the amount on the â€œwholesale exchange rateâ€ which is reserved for interbank purchases. Also, it is superior to the exchange rate you’d get on your account statement if you just swiped your plastic.
Now, it is important to note that you need to factor in many aspects before choosing which one is best for you. Our advice to you is that you, first of all, consider what your current financial objective is. Then you match that requirement to the usability of either of the two modes of payment. Furthermore, keep both of these cards with you just in case you want to carry out a certain transaction. That way you can get the best of both worlds.
Author: This article is written by Anubhav, who is a Content Writer at LegalRaasta.