Credit and debit cards
Known as plastic money, credit and debit cards have done away with the requirement of carrying cash. A debit card is like cash or a personal check while a credit card is a loan from the credit card company.
Differences between credit and debit cards
A credit card can be used to pay later whereas a debit card is used to pay now. This simply means that what you purchase using a credit card can be paid for at a later point of time. However, in the case of a debit card, you have already asked your bank to subtract the money from your checking or savings account. How much money you have in your bank automatically determines how much you can spend using your debit card. In the case of a credit card, you are using credit for all your expenses and purchases. This credit is paid back each month when the credit card bill arrives. If you happen to pay less than what you owe you are asked to pay interest on the amount that you decide not to pay back in that particular month. With a debit card, you set the limit to what you want to use for expenses. In the case of a credit card, it is the credit card company that sets the limit based on factors such as your credit rating, income, debts and your ability to take care of your existing payments.
Advantages of debit cards over credit cards
- Debit cards are often easier to get than credit
cards. Since the money is already in the account, banks are more than
willing to give you a card that allows you to take out money whenever you
wish to.
- Debit cards mean that no identification or check approval is required at the stores or shops that you go to for your purchases.
- Debit cards eliminate the need to carry cash, travelers checks or even a checkbook.
- The best reason why a debit card is better than a credit card is that you dont have to pay interest charges for using a debit card.
Disadvantages of debit cards
- You must always ensure that your bank account has sufficient money to cover the purchases and expenses that you make using your debit card.
- If something goes wrong with your purchase and you have already paid for it using your debit card, your bank will not be able to put back the money into your account.
- There may be extra costs that banks charge debit card holders if they fail to keep minimum balances in their checking account. This varies from bank to bank.
- If a debit card is lost, you stand to lose all the money you have in your checking account. There is hardly any protection if the debit card is misused.
Overview
Choosing between credit and debit cards depends upon the user. A debit card is more like a blank check and can be misused if it is lost or stolen. A credit card on the other hand, can also make a person a compulsive borrower.
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