Debit cards and credit cards are both widely used for making payments, yet they work differently and offer distinct advantages and disadvantages. Let us try to understand them.
Debit card is the one linked to your SA / CA.
Credit card is a sort of loan by the issuing bank that one can use up to the limit of the card and need to settle the dues on the card regularly.
Debit to account –
DC – Any charge made on the debit card results in the amount being withdrawn from your SA/CA immediately as per the charge and to the extent of balance available in account.
CC – While a credit card has a pre-sanctioned limit, and all charges made in the particular period called the billing period need to be settled by the due-date. Thus, you have an interest free period available on the card from the time of the charge up to the due date by when payment of the bill due needs to be made/settled.
Protection against charge –
DC – Charge on Debit card if is a result of fraud and such other reasons, will still result in the monies being debited from your account and often takes time to be recovered if in case it is proved fraudulent.
CC – Any fraudulent charge on credit card that is reported within a specified period, there is no obligation on the holder of card to pay for that charge.
Loyalty points and benefits of schemes –
Most credit cards offer points for spending on the card and these points can be redeemed for various gift cards etc. or sometimes even as cash back which is not a feature offered on most debit cards.
Credit History –
Spending on credit card and ensuring timely settlement of the credit card bills helps you build a credit score that is useful in many cases like when you take car/bike/home loans or any other loans.
Use of debit card does not assist you in establishing your credit scoring.
Costs –
Most credit cards come at nominal annual charges or lifetime free while unsettled bills attract high interest. Most debit cards have an annual fee unless it is in relation to zero balance salary account and such.
Benefit of Insurance coverage for Travel and life and fraud on cards –
There is Insurance coverage attached to most credit cards based on your limits of usage, which most of us are not aware of.
There are certain insurance covers available with the debit cards also and come with the obligation to use the card for a minimum number of times in the certain period to be the beneficiary of the Insurance, if any available with the card.
To Summarize – Choosing between a debit card or a credit card depends on one’s financial habits, needs, and goals. While a debit card may be a more suitable choice for day-to-day spends, thus ensuring spending within your means, A credit card can be a better option where one wants to build credit history /score, earn rewards, or have a financial buffer, provided one manages it responsibly.
