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Credit Card Vs Debit Card: Which one is Better?

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Credit Card Vs Debit Card: Which one is Better?

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The dilemma of credit cards vs debit cards is a universal conundrum. Some people may find it easier to choose between the two, but for others, making the choice between these two financial products can be tough. Getting to know the differences between credit cards and debit cards will also help you understand the benefits of credit cards and debit cards. So, let us take a deep dive into this part of personal finance and aim to settle the credit card vs debit card debate.

Credit cards vs debit cards: What are they?

A debit card is a card that is typically linked to your savings bank account. It allows you to make purchases or cash withdrawals using the funds that already exist in your account. You can use your debit card to make purchases online or offline via POS terminals. However, you can only spend up to the amount available in your account. If you want to spend more than that limit, you need to deposit more funds into your linked savings bank account.

A credit card, on the other hand, is a line of credit that allows you to make purchases with funds that you do not yet have. In other words, you can make purchases today and pay for them later, within a specified due date. You can make as many transactions as you want to with your credit card, as long as the amounts are within the credit limit specified on the card. You cannot spend more than the credit limit made available to you. 

Credit cards vs debit cards: The key differences

The description of these cards should have given you a better idea of the fundamental difference between credit cards and debit cards. However, when you take a closer look, there are many points of difference between them. Let’s understand these better.

Spending limit

The overall spending limit on your debit card is capped by the amount in your linked savings account. That said, some debit cards will have a daily limit for POS transactions or cash withdrawals. In the case of credit cards, the overall spending limit is restricted by the credit limit available on your card. 

ATM withdrawals

It is easier and more economical to withdraw cash from ATMs with debit cards, especially if you use ATMs of the same bank that issued the card. On the other hand, ATM cash withdrawals using credit cards are more expensive, since the interest levied on such transactions is fairly high.

Interest charges

When you use a debit card to make a transaction or a purchase, you do not have to pay any interest because you are simply using the funds you already have. On the other hand, when you use a credit card, you will be charged interest at significantly high rates if you do not pay the bill within the interest-free credit period. 

Annual fees

With debit cards, there are no annual fees levied. In the case of credit cards, however, you will have to pay an annual fee each year. That said, there are some cards which do not levy this fee. And there are also credit cards that allow for a waiver of the annual fee if you spend a certain amount during the year. 

Impact on credit score

Using a debit card has no impact on your credit score, per se. But a credit card impacts your credit score directly, since it is a form of credit. Repaying your credit card dues on time will have a positive effect on your credit score, while any delayed payments will bring the credit score down. 

Credit cards vs debit cards: The pros and cons

Before we settle the debate, let us take a quick look at the benefits of credit cards and debit cards, as well as the drawbacks they may possess. 

Let us first discuss these details for a debit card. 

Now, let’s see what the two sides of a credit card are. 

So, which one should you choose?

That depends entirely on your requirements. A debit card may be ideal for you if you have a tendency to overspend or if you are trying to limit your monthly expenditure. On the other hand, a credit card may be ideal for you if you are looking for ways to improve your credit score or if you have a stable source of income. 

Of course, you can always choose to have both debit and credit cards in your wallet. But if you do, keep in mind the pros and cons of both cards and use them in a smart and well-informed manner. 

Summing up

This sums up the key differences between credit cards and debit cards. As you can see, there are benefits of both credit cards and debit cards that you can take advantage of. As mentioned above, you can also have both credit and debit cards in your portfolio, as long as you have the financial discipline to use them prudently and without accumulating a mountain of debt. When used well, both credit and debit cards can be incredibly beneficial to you. 

Frequently Asked Questions (FAQs)

1) Are debit cards the same as credit cards?

No, debit cards are not the same as credit cards. With debit cards, you can spend from the balance existing in your account. However, with credit cards, you can spend funds you do not yet have, up to a predetermined credit limit. Thereafter, you need to repay the dues accumulated on your credit card within a specified due date. 

2) Which is better: credit cards or debit cards?

That depends entirely on your requirements. Each type of card comes with its own features and benefits. With a debit card, you can spend money in your account without incurring any additional liabilities. So, if you have trouble limiting your spending on your own, a debit card may be a better option for you.

On the other hand, credit cards give you access to the ‘buy now pay later’ facility, and also help you build a credit history in the process. Plus, you get many rewards and offers on spends made with your credit card too. 

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