Whenever we talk about plastic money, we mainly tend to mean debit cards or credit cards. And with the gradual advancement of technology, the majority population nowadays uses ATM-cum-Debit cards, but very few people, except for the urban population, are aware of credit cards.
Credit cards are also bank cards like Debit/ATM Cards, but there are some differences among them. And if you get to know how to get and use a credit card effectively, you’ll have a lot of added benefits that you’ll never get through a debit card. Let’s discuss the same in detail.
What is Debit Card?
A debit card is a bank card that is linked to your bank account and deducts money from your account balance whenever you use your card for online payment, offline payment through a PoS machine, or cash withdrawal through an ATM.
Many people think that a debit card and an ATM card are the same, but there’s a slight difference between the two. An ATM Card is only supposed to have the functionality to withdraw cash from an ATM machine with very limited use other than that. But a debit card can be used everywhere, be it online payment, offline payment in any shop’s PoS machine, and also cash withdrawal from an ATM machine.
Debit and ATM cards have only one common purpose i.e. cash withdrawal from ATMs and that’s the reason most of us think these to be the same. And to avoid confusion among the consumers and issuing two different cards, most of the banks now issue ATM-cum-Debit Cards which can be used everywhere.
What is Credit Card?
A credit card is a payment card that is not directly linked to your bank account and allows you to borrow money from the card issuer up to a certain limit in order to purchase items or withdraw cash.
The main difference between a debit card and a credit card is that a debit card deducts money from your bank account’s balance while a credit card deducts money from the loan amount the card issuer has given you in the form of a credit card limit. And so a credit card is not affected by your account balance, it can be used even if your account has zero balance.
Difference between Debit Card vs Credit Card
A debit card uses money from your own bank account, but a credit card borrows money from the card issuer with zero interest if paid on time.
Why Credit Cards are Better than Debit Cards?
Debit cards use your own money, but a credit card borrows money from the card issuer giving you a grace period to repay in some weeks. And the best part is that this credit limit amount is interest-free if you repay before the due date.
Also, credit cards give you a lot of offers and cashback in most of the online as well as offline stores. You also get reward points on a certain amount of spending through your credit card in a monthly billing cycle which can be converted into real cash.
And there are many more benefits of a credit card in comparison to a debit card because you don’t get most of these offers on a debit card. Also, your transaction history of debit cards isn’t shared with credit bureaus and so no improvement on CIBIL score but credit card transactions and timely repayment can build a good credit score.
Advantages of Credit Cards
- Interest-free loan for 25-45 days if you repay the outstanding amount before the due date.
- Reward points, cashback and discount offers on most online and offline stores.
- No-cost EMI facility.
- Timely paying your credit card bills improves your CIBIL Score.
- Most credit cards are issued with Visa and Mastercard, and are accepted everywhere.
- Easy-to-use in international sites and subscription services.
Disadvantages of Credit Cards
- Very high interest rate (25-30% per annum) if you don’t pay the bills on time.
- Interest is calculated from the transaction date and not from the billing date.
- Some credit cards have a lot of hidden costs.
- High charges on cash withdrawal through ATMs.
- Exceeding your credit limit can lead to high interest rate and also affects your credit score.
- Easy access to money you don’t have actually can lead to unwanted payments and eventually a debt.
Conclusion: Debit Card vs Credit Card
Everyone likes free money, and that’s why a credit card seems to be very tempting in the starting. But you should be aware that it’s someone else money and you have to return it back after 30-45 days as per the terms and conditions of your credit card. It’s really great that you’re getting an interest-free temporary loan, but credit card interests are very high and can lead to bad debt if you don’t pay the bills on time.
If you’re using a debit card on daily basis, then it’s better to switch to a credit card because it gives you some weeks to repay, and this can be a great emergency fund if you require any time. Also if you use a debit card then it doesn’t provide you more offers nor does it serve to build your credit score as in the case of a credit card. And these are some of the reasons why credit cards are better than debit cards.
Read Also: How to Get Your First Credit Card?