Credit Cards and Debit Cards might appear similar, but they serve different purposes. A credit card offers a short-term loan from the card issuer, which you repay later. In contrast, a debit card lets you spend money directly from your savings or current account.
Many young Indians, whether salaried employees or business owners, carry a credit or debit card for various transactions, including ATM withdrawals, bill payments, groceries, and larger expenses like fees, flights, and durable goods. Not everyone knows the significant difference between credit card and debit card or which might be better for their needs.
Read on to learn more!
What is a Credit Card?
A credit card is a useful financial tool that lets you borrow money from a bank or financial institution to pay bills and buy things. It provides a credit line, like an allowance of money you can use to make purchases, usually up to a certain limit. Credit cards are popular because they make it easy to buy things with just a simple tap or swipe.
What is a Debit Card?
A debit card is a special card connected to your bank or financial institution’s checking account. When you use a debit card to buy something, the money is immediately taken out of your account, so you can only spend what’s in your account. Debit cards are accepted at many places for payments and can also be used to take out money from ATMs. They’re a convenient and safe way to access money for everyday use.
Difference between Debit Cards and Credit Cards
The primary difference between credit card and debit card lies in the source of funds. A debit card gives access to the funds in your bank account. Whereas a credit card provides a credit line you can use based on your requirements. The credit card is linked to the issuing bank or financial institution, which might differ from where you hold your bank accounts.
Here’s a comparison between debit cards and credit cards:
|Particulars||Credit Card||Debit Card|
|Availability of Funds||Borrowed from the card issuer||Deducted from savings/current account|
|Spending Limits||Up to your credit limit||Up to available balance in savings/current account|
|Advantage||Short-term loan based on credibility||Prevents overspending by using available funds|
|Important Fee & Charges||Joining fee, annual fee, late payment fee, interest, etc||Cash withdrawal fee, annual fee (in some cases), etc|
|Interest||Interest charges for late payments||No interest charges|
|Rewards and cashback||Extensive rewards and cashback (varies from bank to bank)||Limited rewards and cashback|
|Repayment||Monthly repayments||No repayments|
|Impact on Credit Score||Direct impact on credit score||No direct impact on credit score|
|Additional Privileges||Lounge access, lost card liability cover, higher cash withdrawal limits||–|
Please note that credit and debit cards’ specific terms and benefits may vary depending on the card issuer and the card type.
Debit Card vs. Credit Card: Which is a Better Choice?
A debit card is generally recommended as it helps you avoid debt. Debit cards are considered safer due to their secure PIN, which should be kept confidential. The rise of digital transactions has also made credit cards essential. They simplify purchases, bill payments, travel expenses, and more.
Credit card benefits offer attractive privileges and rewards. Many cashback and rewards cards come with appealing features. Choosing the right credit card can save you money. Having a couple of credit cards for specific purposes can be beneficial if used wisely. Responsible use includes clearing monthly dues promptly.
Credit cards are convenient, but the temptation to overspend should be controlled. If used carefully, they offer many advantages. Caution is necessary to prevent misuse.
Now that you’ve explored this detailed comparison between debit and credit cards, you’re better equipped to make an informed choice and avoid unnecessary financial stress. When used wisely by someone with strong financial discipline, credit card benefits can give you an edge over debit cards. If you tend to overspend and struggle with repayment planning impulsively, it is advisable to stick with debit cards. They help limit the risk of exceeding your budget.
Frequently Asked Questions
Q: Can I move money from my credit card to my bank account?
You can transfer money from your credit card to your bank account. You can use e-wallets like Paytm, Freecharge, MobiKwik, and others to move money from your credit card account to your bank account.
Q: What are the benefits of having both debit and credit cards?
A debit card is convenient for withdrawing cash and helps avoid debt or overspending. On the other hand, a credit card offers spending flexibility and assists in building a positive credit score.
Q: What are some drawbacks of a debit card compared to a credit card?
Because a debit card deducts money directly from your account, it does not provide the same spending flexibility as a credit card. It limits you to spending only what’s available in your bank account.