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Credit Cards Vs Debit Cards
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A number of people do not understand the difference between debit card and credit card. Let us first know what these two type of cards are : What is a Credit Card : In simple terms, a credit card a small plastic card usually issued by a banks which allows the holder of the same to purchase goods or services on credit upto the pre-decided limit. These also allow cash withdrawals from ATMs, again upto the limit allowed by the issuing bank. These limits are set by bank based on the credit worthiness of the holder of the card.
What is a Debit Card : Debit Card looks like a credit card, but unlike credit cards, Debit cards are linked to one of your accounts in the bank. Thus, whenever you withdraw cash from an ATM or purchase good or services at a store, the money is actually debited to your account immediately. Thus, we can say that Debit cards are like digitized versions of checkbooks. These cards are linked to your bank account and money is debited (withdrawn) from the account as soon as the transaction occurs
Basic Difference between Credit Card vs Debit Card : The Basic difference between Credit Card & Debit Card is that, in case of credit card you get a few days to pay back money spent on shopping, and thus may save some interest. In case of Debit Cards, the amount is deducted from the account at the same time when you make purchases at a store or withdraw money at an ATM. So if one has the money in his account and don’t need any other credit, one should use the Debit card. There will be no need to track the due date payments Ad
Tips for Using Credit Card : 1. You should prefer to use credit cards as they give you sometime to pay back the funds, which is interest free. Thus, if you have made purchases worth Rs 50,000 from a credit card, and your due date is say 30 days after the date of purchase, you can enjoy to get interest in your saving account for 30 days (i.e. about Rs 167.00 at the rate of 4%) alongwith some time discounts or points on your spendings. However, you must ensure that you pay the credit card bill before the due date or else charges (penalty and interest) for late payment are very high. 2. In case you are short of funds but really needed to purchase the items through credit card, banks may even allow you to repay the amount in small EMIs. However, be aware that rate of interest charged to such EMIs is very high – ranging from 18% to 36% p.a. 3. In case you are a regular user of Credit card, and ensure that the bills are paid before the due date, it can help you to build a good credit score. This can help you in future when you intend to raise other loans like car loan / housing loan or in enhancing your credit limits on credit cards. 4. Most of the banks charge annual fee for credit cards and thus in case you are not high spender, the annual fee may be even higher than other savings in the form of interest etc. 5. You should avoid withdrawing cash from Credit Cards as charges for cash withdrawal from credit card limits are much steeper. 6. Petrol pumps sometimes charge a fee in case you pay the amount through credit card. Thus, you should be sure as to whether your credit card allows to use the same without any additional charges even at petrol pumps. To save such charges, try to pay cash at petrol pumps. In case your card entitles you to get petrol without any additional charges, feel free to get your tank filled up through credit card. Ads by Google Thus, you should try to get a credit card which does not charge any annual fee or it is nominal fee, and ensure that you pay the bills on time.
Tips for Using Debit Card : 1. In case your bank offers free Debit Card/ or charges nominal fee, with your SB account, you must obtain a debit card as there are no charges or any fees for paying through Debit Cards for your purchases of good / services. Usually, upto 5 transactions are allowed free of cost even for cash withdrawal from the ATMs of the same bank. Thus, you must withdraw cash from ATMs only for limited number of times in a month or else banks may charge you Rs20/- per transaction beyond the free number of transactions allowed. 2. Debit Cards allow you to purchase goods or withdraw cash only upto the amount available in your SB account (except in case your bank has allowed you overdraft facility in a prior agreement). Thus, you automatically control overspending and can not be caught in debt trap. 3. You must ensure that you do not share your password with anybody, as leakage of passwords can expose your accounts to be misused.
Final Tips for Credit Card vs Debit Card usage : (a) Now a days usage of Credit Card against Debit Cards has limited benefits. Till 2008 the Credit Card usage was high and Debit cards were used basically to withdraw cash on ATMs. Recent numbers are showing Debit Cards being used more than Credit Cards. For all those customers shopping at Credit Card for offers should check there Debit Card offers as well. Debit Card should be used as it is a convenient mode of payment when compared to carrying large cash with you.
(b) For those who need Credit – Should keep using Credit Cards but should understand that Credit Cards comes with its extra charges/fee and Interest rates which are really high if you don’t pay on time. .
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