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“A credit card and a debit card work the same way and has got same benefits”. The statement appears to be true, but it’s not. They may appear to be working same way to some extent, but benefits offered by the two vary. Both the cards look alike, are swiped in same way to pay for purchases, but still their working is different.
Lets’ explain this with an example. Consider two persons going to a store for some shopping, one is having a debit card and another one has got a credit card for paying for the purchase. At the billing counter, for both the customers, cards are swiped in a similar way. The credit card bearer then signs a receipt while debit card carrier provides his PIN. After this, both take their purchased goods and walk to their way home. It seemed same, but processing that occurred at the backend is entirely different.
For credit card bearer, his bill was paid by company that issued him the card and his signature on receipt was consent that he will pay back the amount to issuer. He will receive a billing statement from the credit card company that will be listing the purchases made through this card and what is their total bill. He is supposed to pay at least half of the bill amount before due date or he will be fined. Also there is an interest free period, within which if payment is made will have no interest. After this period, interest will be charged on unpaid balance.
On the other hand, debit card is linked to person’s bank account. This means payment of good through debit card was made directly from account of the person. There was no debt generated, nor there will be any billing statement stating payment of pending debts. It is a case similar to a transaction in which amount is transferred from account of debit card bearer to merchant’s account.
There are pros and cons of both, let’s take a glance at them.
- There is a credit limit set for a credit card up to which purchases can be made; whereas, in case of a debit card one can purchase till there is enough balance in one’s account to meet the billing limits.
- You can make use of a credit card even when your account doesn’t have enough balance, but it is not the case with debit cards.
- In debit cards there is no need to worry about APR, but in credit cards one can enjoy interest free period for limited time.
- Credit cards offer fringe benefits like reward points or money back offers, but debit cards have no such associated offers.
- While using credit card, you expenses might exceed your account balance without notifying you. If it is not used wisely, you may get into a quicksand of debts.
- Some transactions like ticket bookings and payments at petrol pumps charge extra amount when paying though credit cards.
- Cash withdrawals using debit cards have no transaction fee, but using credit cards for cash withdrawals adds transaction charges and interest is also charged of withdrawn amount, i.e. there is no interest free period.
In nutshell, it is beneficial to use credit cards in emergency situations when your account lacks money, but its overuse is not advised. It’s better to use debit card as it keeps a control on your expenses.
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