Debit vs. Credit Card – Which Is Better For You?

“Debit vs Credit Card?” – A question almost all of us have been asked by a cashier.

Why is it that some people prefer using a credit card over a debit card, or vice versa? What exactly is the different between the two and how do you figure out which one is better for you? Let’s answer these questions one by one.

What’s The Difference?

Each time you use a credit card, you are borrowing money from a bank or a financial institution. At the end of each month, you return the total amount of your purchases to the bank. If you are unable to do so, the balance is carried on to the next month and you are charged with interest.

When you use a debit card, or an ATM card for that matter, you use your money that is available in your bank account.

Which Card is Better for You?

People who use debit cards find it a safer option because they offer instant access to their own money, and there is a lesser chance of maxing out the limit. Others believe that debit cards help curb spending, so they are a good alternative to credit cards.

On the other hand, when using credit cards it is easier to lose track of your expenses and spend more than you have in your bank account. The result? You are unable to pay off your balance at the end of the month, which leads to interest being charged.

Does that mean a debit card is a superior option? Well, not in all cases. A credit card, when used cautiously, proves to be extremely useful in the following cases:

For Building Credit

Using a credit card responsibly can help you build or repair your credit history. When you make your payments on time, the credit card company will report your payment activity to the 3 major credit bureaus. Financial activity from a debit card is not reported to the credit bureaus, so it will not help build or improve your credit score.

For Online Shopping

Using a credit card for online shopping provides extra protection against fraud and also makes getting a refund easier. When you use a credit card to pay for an online purchase, you have the chance to withhold the payment in case you change your mind or if there is an issue with the purchase. On the contrary, if you use your debit card for online purchase, funds are instantly withdrawn from your account, so there is no turning back.

To Maximize Rewards

Even though some debit cards offer perks, the reward programs offered by credit cards are more enticing, such as 1%-5% cash back at stores, gas stations, clothing retailers or restaurants.

For Frequent Travelers

Many credit card companies reward travel with air miles or points toward free hotel stays or car rentals. Debit cards, on the other hand, do not offer such rewards. Furthermore, some credit cards might offer additional travel perks, such as car rental insurance, emergency assistance, or even a 24-hour phone concierge service.

Considering these features of credit cards, determine what is more important for you and then decide whether a debit or credit will be more suitable to your lifestyle!