Debit card vs. credit card – which one is better? mystery solved!

    24th Apr 2018
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    The monetary revolution was introduced when we no more had to carry those heavy bundles of cash or even checkbooks for that matter along with us wherever we would go – Thanks to the digital currency!

    Every financial related blog would have this never-settling dilemma to choose between a debit card and a credit card for digital payments. If we are on the verge of comparing the two, let’s quickly relate the debit card with the “digital” version of the checkbook. 

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    Yes, the payment you make with your debit card for any commodity or service gets directly deducted from your bank account – just like a check does. On the other hand, Credit Cards allow you to purchase something while agreeing to “pay at a later date” with an imposed interest rate, of course. Those were just some basics about Debit and Credit Cards. There’s actually more to this debate!

    Another argument would say that paying through a credit card would make you go into a kind of debt to the card issues – practically, the argument is correct. Let’s discuss and compare more between the two to see if there can be a conclusion established?

    Advantages associated with debit cards:

    1. I’d prefer to pay huge bills at the month end, says no one ever. The biggest benefit associated with using a debit card is to pay in pieces without burdening yourself with a huge credit card bill at the end of every month – totally frustrating.

    2. Rational spending – Have you ever figured why you end up spending more with a credit card in hand? That’s because you don’t have to pay for anything right now. Scientifically, the natural tendency of a human is to look for immediate benefits – that’s where the credit card issuers win.

    3. No fee – Why to pay fees for something you are purchasing with your “own money” argues some. While making a transaction with a debit card, one doesn’t have to go through any kind of additional charges (except for the taxes, of course) which makes you save additional money. However, a user might have to pay a kind of “overdraft fee” if they end up spending more than that they have in their account.

    4. No interest – Obviously, one doesn’t have to pay any interest as there’s no bill that gets issued at the end of every month.

    Advantages associated with credit cards:

    1. Endless rewards – Would you normally get a reward while paying bills through Debit Cards? The biggest benefit that is associated with a credit card apart from the case of “paying later” is the number of reward points that gets accumulated as per your spending. Cash backs on grocery bills, electricity bills, water bills, and travel points are definitely profitable to a user.

    2. Credit score – If you are a rational spender who would timely pay the credit card bills every month, you could get an incredible score in your credit history. What’s the use you’d ask? Well, to put it in simpler terms – one could easily get a loan issued by the bank with an incredible credit score.

    3. Free insurance – Care for a free insurance on your air tickets/bus tickets? Some credit card issuers (banks) would provide you a free insurance on your travel spending. Just in case, your plan goes down, you can always make use of the free insurance you got through your credit card.

    4. Additional warranties – Who wouldn’t like additional warranties for the items purchased? An item for which you have paid through a credit card would get you warranty points or an extended warranty without charging you a penny for it.

    The application process for issuing a credit/debit card from banks:

    For Debit Card, the overall process to get it issued from a bank is somewhat easy. In fact, there’s no hassle at all. One can simply get it issued (linked with savings bank account) through an application in no time. On the other hand, for credit card users, getting a credit card issued is quite a job. One has to have a completely clean credit history and a good score to get their card issued or updated.

    The bottom line:

    Ask yourself – Is your income commission based or is monthly fixed? Or, are you a rational or an irrational spender? Getting a credit card for yourself can be beneficial and can get you added benefits if you choose to spend it wisely.

    On the other hand, if you fail to pay your bills on time, you’d be eligible to fill for your penalties. Plus, you will lose good points on your credit score.

    Therefore, it all comes down to one point – how’d you choose to spend and how is your spending habits aligned? 

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    Kritesh Abhishek
    Hi, I am Kritesh, Entrepreneur, Investor & Blogger@ Trade Brains. I am passionate about financial market and has spent my last 3 years learning, investing and educating people about value investing & personal finance. And so, I am delighted to share my learnings with you. #Cheers

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