Difference Between Credit Card and Debit Card

It is hard to contemplate life without credit cards and debit cards. Gone are the days when cash was the way to go for transactions. 

Two of the most popular financial products we use today are credit cards and debit cards. They are two plastic cards used to carry out cashless transactions and purchase goods and services. However, there are major differences between these two plastic cards in terms of managing spending.

Let us dive into understanding these two products – features, differences, and more.

Credit Card Vs Debit Card

Here is a quick comparison between debit cards and credit cards -

How Does a Debit Card Work?

Debit cards allow you to pay for purchases, both online and offline. The amount is debited directly from your account. Here are some salient features and benefits of debit cards -

• Getting a debit card is easy. All you need is a savings or current account.

• The amount is debited from your account, so you can only utilize the existing funds in your account. The advantage of this is that you will not run into debt unnecessarily.

• You can also use a debit card to withdraw money from an ATM.

• You need a PIN to make secure purchases using your debit card.

• There may be a limit imposed on the amount you can spend each day.

• Certain debit cards come with joining as well as an annual fee.

• While it is not very common, some debit cards can also provide rewards and the option to convert your purchases to EMIs.

How does a Credit Card Work?

Credit cards are an incredibly popular financial product that allows you to purchase products and services on credit. Some salient features and advantages of credit cards are -

• Credit cards give you the option to buy now and pay later. 

• A credit is issued to an individual by a credit card company after checking his/her creditworthiness.

• Based on your creditworthiness and your salary, the credit card company will decide the spending limit of a card. 

• While the interest rate charged is high, you can avoid this if you pay within the due date.

• Credit cards also come with a number of privileges such as Air Miles, cashbacks, Reward Points, etc. 

• This product is a great way to build credit and increase your credit score.

• While you can withdraw cash using credit cards, it comes with a hefty rate of interest.

• If you are unable to pay your bill in full, you can pay just the minimum amount due and pay the rest through EMIs. However, an interest rate of 2.5% to 3.5% per month will be charged.

Which one is Better – Credit Card or Debit Card?

The answer to whether you should choose credit cards or debit cards is dependent on one main factor, i.e., your financial requirements.

Are you looking to build your credit and are disciplined enough to pay bills on time? Then opt for a credit card. This way, you can also take advantage of the ‘no interest period’ and build your credit score through timely repayments.

Another benefit of credit cards is that you get time to make delayed payments. The interest-free period for your credit card can range from 20 to 40 days, which you can take advantage of. Credit cards also come with rewards such as Air Miles, discounts on dining, and movie tickets. 

However, if you just want to make your purchases without having to go to the bank or use cash, then just use your debit card. Additionally, you will not incur interest charges since the amount is debited from your savings account. This way, you can avoid falling into a debt trap.

Both credit and debit cards have their own advantages and disadvantages. Depending on your requirements, you need to decide whether you need a credit card, or you can manage your financial transactions with your existing debit card, or you need both.

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