Debit Card VS Credit Card

The credit card and debit card battle has been mistaken to be superior to the other. Both cards are essential in our daily lives, and each one has features that make it preferable to a particular group of people. These cards are very similar physically, and one can even be mistaken for the other, but their composition and functions set them apart.

Debit cards permit owners of bank accounts to use money by extracting that which they have already deposited at that bank. A credit card provides a borrowing service for consumers from a credit card provider. The debt offered has a limit, and one can use it to purchase goods or services and make cash withdrawals. Both credit and debit cards offer convenience and financial safety that would otherwise be very hard to achieve.

Here is a detailed dissection of both cards to give you an insight into how each of them works and help you make an informed decision that complements all your financial needs.

Credit Cards

A financial establishment or lender gives a credit card to enable the customer to borrow money from the provider. When your application is approved, you acknowledge to pay back the money, with low-interest, as per the lender’s terms and conditions. To calculate banking interest rate, you can read full details here.

There are four categories used to classify credit cards: 

  1. Standard – These credit cards offer credit to their customers.
  2. Reward – These cards provide cashback deals, store discounts, travel points, or other bonuses to their customers.
  3. Secured – You have to pay a cash deposit before receiving any credit. The lender retains that money as collateral for your debt.
  4. Charge – These cards do not have a predetermined spending limit. However, they are very strict when it comes to enforcing that no unpaid balances carry forward to future months.

Credit card owners who use reward cards can enjoy numerous perks that are inaccessible to those with debit cards. If you pay off your card utterly and before deadlines every month, you can gain predominantly by sorting out portions of your monthly shopping and house bills.

How you use your credit card is usually monitored and reproduced on a credit report. It allows responsible credit card users to improve their credit scores with well-thought purchases and punctual payments. Some credit cards also offer their customers extra warranties and insurance for purchased goods whether they offer the same perks. You may find that a defective item that you purchased using a credit card may still be covered by a warranty at your credit card provider even after the manufacturer’s warranty has expired.

Credit cards offer considerably greater protection compared to debit cards. If you promptly report theft or loss of your credit card, your maximum liability for any purchases made using your card after its disappearance cannot go beyond $50. Debit cardholders enjoy similar protection as long as one reports the loss or robbery incident before 48 hours are over. After that, the credit card users’ liability goes up to $500, and if 60 days pass, there is no limit to the amount of money the cardholder may be liable for.

Credit cardholders can dispute illegal purchases, loss of goods during shipping, or purchase damaged goods through the Fair Credit Billing Act. That gives credit card users a sense of security, mainly because mishaps related to shopping online are rampant. Debit cardholders can only dispute such incidents if the seller is willing to let them. That not all; debit card owners who have lost their cards can only get a refund after investigations into the matter have been completed. Credit cardholders enjoy more leniency compared to their debit card counterparts. Customers who own credit cards are not held liable for the disputed charges up and until they withdraw the dispute or the matter is settled in favor of the seller.

Renting a car is not any more comfortable for debit card customers. Most car rental companies prefer that all customers provide their credit card details as a provisionary against collisions or any sort of damage. Some even go ahead to ask that they be allowed to hold a certain amount of money on a debit card to act as a guarantee deposit. One cannot blame them. If you run a business, you want to be assured that you will be compensated or indemnified in an accident. Credit card companies offer insurance against collisions, so rental agencies are not as reluctant to let their cars go where credit cards are involved.

Debit Card VS Credit Card

Debit Cards

A debit card allows you to make payments by subtracting money directly from your checking account. Major debit card processors like Visa and MasterCard strive to offer similar convenience to credit cards and just as many consumer protection measures.

Debit cards come in three categories:

  1. Average debit cards draw money from your bank account.
  2. Federal institutions issue electronic Benefits Transfer (EBT) cards to enable specific users to use their benefits for making purchases. Not everyone can own an EBT card.
  3. Prepaid debit cards offer those who do not have bank accounts a strategy for making electronic purchases limited by the amount of money they loaded onto the card.

Most economical customers prefer debit cards to credit cards because little to no fees are charged unless one spends more than what they have deposited into their bank account. If this happens, they incur what we call an overdraft fee.

Final Thoughts

Debit cards are ideally better for day to day use. Credit cards can quickly sink you into debt and such, should be saved for emergencies and purchases that are necessary. Very tempting to use credit and debit cards haphazardly, but it is essential to remember that you are spending your own money, one way or the other.

Proper financial planning, budgeting, and discipline are crucial if you want to use a credit card or debit card responsibly. Failure to take this into account will see you losing control of your finances, going broke, and getting deeper into debt. Consider the comprehensive breakdown above to help you choose the most suitable option for you.

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