Finances 101 – debit card vs credit card
In today’s world cash payment is being widely replaced with payment by a credit or debit card. You might need one to use the advantages of e-booking, car rentals, and basically easy payment at shops and restaurants. But which one is right for you? What are their differences and their similarities? The debit card vs credit card debate begins.
Debit card vs credit card – access to money
Access to money means how fast and simple it is to get money transferred on your card, and how easy it is to use them at various locations. Depending on your employer’s policy, you might have your monthly salary deposited directly to your debit card, thus avoid the inconvenience of making the transfer yourself. Also, social security and unemployment deposits can be handled in the same way. On the other hand, a credit card would be better to use at a gas pump. If you pay for the gas with a debit card, the gas station may hold up some money up to a week. Debit card vs credit card? It’s a tie.
Debit card vs credit card – credit ranking
The comparison debit card vs credit card here is easy. How you manage your credit card will affect largely your credit score, while debit purchases will not affect it in any way. Debit card wins.
Debit card vs credit card – credit limit
The borrowing limit for a debit card is determined by the amount of money you have deposited on a savings account. The card issuer will use your savings account as insurance for loaning you the money. The limit on a credit card is not backed up by virtually anything. People with a good credit score will get approved for more money to borrow.
Debit card vs credit card – interest rates
Since the card issuer of credit cards does not have the money that he is lending insured, he has to make sure cover the costs of the people that default on their debt. This results in higher interest rates paid by everyone. There is no interest paid for debit card purchases. If you fail to repay the money by the end of the billing period, you will be charged from your savings account.
Debit card vs credit card – managing the amount of money you owe
Debit cards put a restrain on the amount of money that you borrow. Basically, you cannot borrow more money than the money you have deposited on a savings account. For the better or worse, there is no such restriction with credit cards. Many people then borrow more than they can repay. The interest rate payments start to build up on top of the money that you have spent. It’s a slippery slope.
Debit card vs credit card – which one is better?
Ultimately, it depends on your personal preferences and needs. Consider the advantages and the disadvantages of both options. Choose wisely. The debit card vs credit card dilemma should be considered closely.
An excellent credit card resource is the wikipedia article on credit cards wikipedia on credit cards
