Debit and credit cards are different payment options that look almost the same in appearance. If you want to purchase daily groceries, make booking for vacations, or pay monthly bills, which card should you take out – a debit card or a credit card?
Here we will discuss the debit card and credit card differences and the advantages and disadvantages of using each card for daily purchases!
When Should You Use Your Debit Card?
Debit cards can be used anywhere, anytime, just like a credit card. The only restriction remains the funds’ availability in the cardholder’s bank account.
Let’s look at the advantages and disadvantages of debit cards.
- You can withdraw cash (without interest) on your debit cards and use it freely as long as it has a balance.
- You can earn some savings interest on your debit card balance.
- You are not liable to pay any charges on any purchase you make – online or offline.
- Using your debit card doesn’t help you build a credit history.
- If a transaction fails, the money debited may take time to come back.
- The reward points or discounts are not as attractive as credit cards.
When Should You Use Your Credit Card?
Credit cards can be used anywhere, anytime, without hesitation, as the amount deducted is like a short-term loan you can repay in a specified time. If not fully repaid within the interest-free period, you may have to pay an interest charge on the amount used.
Let’s look at the advantages and disadvantages of credit cards.
- You can make convenient payments without the need for a cash balance.
- You can use it anytime and anywhere – online or offline.
- You can earn rewards points, cashback and discounted deals.
- You can use it in emergencies, even when your pocket doesn’t allow it.
- Using a credit card means increasing your debt.
- It is easy money that can lure you into spending more – if not used wisely, it may attract huge interest charges and lead to a higher debt-to-income ratio.
- Non-payment of credit card bills on time can lead to penalties and negatively impact your credit card credit score.
Overusing Your Credit Limit Can Hurt Your Credibility
Which One Should be Ideally Used For Specific Purchases?
You can use both the cards for offline and online purchases. When spending online, you simply need to enter the card number, date of expiry, CVV, and OTP.
What Is The Meaning Of CVV?
It is a unique 3-digit code printed on the backside of your debit and credit card. Under no circumstance should you share your CVV or OTP with an unknown person, as this may lead to fraudulent transactions.
Types Of Purchases And The Ideal Card That Should Be Used
Let us look at some purchases and see the difference between debit cards and credit cards in paying for them:
- Daily Purchases – Use your debit card for grocery and home expenses. It is better not to be dependent on credit for everyday expenses.
- Regular Online Payments (Like paying utility bills, recharges, OTT subscriptions, etc.) – You can use credit cards to pay monthly payments. You can automate these payments so you don’t miss the deadline and make a lump sum payment of your credit card for all expenses.
- Cash Withdrawals – Cash withdrawals invite high-interest charges on your credit card, so use only your debit card for cash withdrawals.
- Vacation Booking – Make your travel and hotel bookings using your credit card. Not only do you get the advantage of rewards and offers, but you can also convert your bulk vacation purchases into EMIs.
- Occasional Shopping – Looking forward to that annual sale? Use your credit card for that once-in-a-while shopping spree to treat yourself to the best products and services. Make sure you repay the amount within the stipulated period to avoid accumulating high interest on your purchases.
- Online Food Orders – You must use your debit card for minor food orders. If it’s a grand home party, and you need to pay for bulk food orders, you can use your credit card to help you split transactions and get reward points or cashback.
- Overseas Usage – Instead of converting your cash into a different currency or using your debit card for overseas expenses, the best alternative is using a credit card abroad. Do your research about the foreign currency surcharge that may be applicable. If it is too high, you must stick to currency exchange.
Now that we have explored the advantages and disadvantages of debit and credit cards, using them wisely for everyday purchases is essential. Take the time to understand your specific needs, conduct thorough research on the potential repercussions, and then make an informed decision that aligns with your financial goals. By exercising caution and making the right choice, you can effectively manage your finances and maximise the benefits of debit or credit cards.