Here is a scenario: you went shopping. At the end of the checkout line, the cashier scans all your items and asks you for your mode of payment. You open your wallet, and two cards accidentally fall to the ground. One is a debit card, and the other is a credit card. You pick them both up, and now you are stuck in a dilemma. Which card will you swipe? The fact is, both offer a variety of benefits and risks for you to consider.
So, will you be a safe spender, or will you chase reward points? Let’s break it down.
Meet the players-
Debit Card- ‘Your money, Your rules’
They are linked to your bank savings account, allowing you to make payments and receive money directly from the balance deposited in your account. All transactions made from a debit card are immediately reflected in the bank account. The limit for debit card transactions is your bank balance itself, meaning, if the payment amount exceeds the existing bank balance, then the transaction will not be processed. There are also minimal to no transaction charges.
Credit Cards- ‘Spend now, Pay later’
They function differently compared to debit cards. When you make a credit card transaction, you are essentially borrowing a line of credit from the card provider. It is not linked to your bank account but instead allows you to borrow a limited amount from the issuer. However, it’s important to note that interest rates on credit cards in India can typically range from 12% to 36% per annum, depending on the issuer and the type of card. This variance can significantly affect the total cost of borrowing if balances are not paid in full each month.
On the bright side, credit cards also offer reward points, which one can redeem in various avenues.
| Feature | Debit Card | Credit Card |
| Spending Power | Only what’s in your account. | Spend now, pay later. |
| Interest Rates | No interest, just your own money. | Interest applies if you carry a balance. |
| Usage | Great for daily purchases. | Perfect for big buys and emergencies. |
| Rewards | Limited to your account balance. | Cashback, points, and perks available. |
| Overdraft | No overdrafts allowed. | Can go beyond your limit (if approved). |
| Building Credit | Doesn’t impact your credit score. | Boosts your credit score with good use. |
| Security | Tied directly to your bank account. | Additional fraud protection and dispute support. |
When should you use what?
When making an important purchasing decision, it is also crucial to decide the mode of payment. Here, we take a look at which card is the more suitable option for the scenarios.
When should one use a Debit card?
Debit cards are generally used as an alternative for cash and are generally used in the following situations:
Budget mode-
If one is looking to not overspend and stay within a set budget, then a debit card is more suitable since it will not allow one to spend over the limit present in their bank balance. Whereas, a credit card provides easy access to loans, which tempts some people to make purchases beyond their reach or budget, which can be avoided by using a debit card.
Daily doses-
Debit cards are suitable for daily purchases such as groceries, provisions, fruits and vegetables, and so on… These items are generally within the reach of most users and do not justify taking out a loan via a credit card to make the payment. It is a good practice to avoid credit card bills for small transactions.
Safe and secure spending-
If you are afraid of potential credit card fraud or theft, you can opt to use debit cards over credit cards. Quick and easy access to funds tends to result in impulsive purchasing and overspending; thus, debit cards ensure safe and secure spending.
Young and new-
Debit cards are a great starting point for teens and young adults. It helps one learn about financial responsibilities and spending habits without accumulating any financial strain or debt. Credit cards, on the other hand, are riskier and may cause unnecessary debt.
Avoiding interest and additional charges-
Debit cards, generally, do not charge maintenance fees or transaction charges. There is also no risk of incurring interest or late payment fees. This makes debit cards a much cheaper option to conduct transactions.
While debit cards offer safer, more controlled spending, credit cards make up for their risks with significant benefits. So,
When should one use a Credit card?
Credit cards offer instant loans up to a certain limit, making it a better option to make big purchases and accumulate rewards and credit scores.
(Credit cards in India often offer cashback, points, and travel benefits, while annual fees can vary widely, from zero to several thousand rupees).
Rewards hunting-
If you are chasing rewards, travel points, cashback and other perks, then credit cards are the way to go. Swiping credit cards provides users with benefits such as offers and discounts, redeemable coupons and points and premium access to many products and services too. Debit cards do not offer any such perks.
Building credit score-
If one is looking to boost their credit score, they can start using credit cards to make purchases. Your credit score reflects how reliable you are in managing credit, which becomes important when applying for loans in the future. The usage of credit cards and prompt and timely payments of credit card bills boost one’s credit scores. Using debit cards does not affect one’s credit score
Making big purchases-
For significant splurges, credit cards can offer the benefit of EMIs (Equated Monthly Installments), allowing you to spread the cost of expensive items over time. They also provide purchase protection and extended warranties. Debit cards require full payment at the time of purchase, which may lead to financial strain.
Emergency Funds-
It is possible that sometimes, due to emergencies, one is unable to pay the bills or expenses in one shot; a credit card can be a lifesaver. But one should also be prudent in repaying the bills in a timely fashion to prevent fines and additional charges.
Tailored to your needs-
There are several types of credit cards, each suited for a specific expenditure which provides rewards unique to the relevant expense. For example, there are travel cards, fuel cards, student cards and so on. One can get a card based on their expenditure.
Thus, Both debit and credit cards have their own uses and risks. One can choose to use either depending on their risk tolerance, spending habits and personal choice. Whatever it is, one should always be vigilant in their expenditure and plan their expenses as best they can. With that said
Happy Swiping!
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