Credit Cards and Debit Cards

Though credit and debit cards could be mentioned in the same breath most of the time, it is important to know that there is a sea of difference between the two. In credit cards, you are using someone else’s money, while with a debit card you are using your own money. Buying on credit cards is like taking out a loan, but when buying on a debit card you are using money from your own account which you had put in earlier.

The following things will make the distinction between the two clearer.

Credit Cards

Credit cards are termed as plastic money for no mean reason. When a credit card is used, the money from the credit card lending institution is used. At the end of the month, the credit card institution would provide you with a bill. There will be two significant amounts on the bill – the total amount due (which is the total value of the purchases made in the month plus interests plus value added services if any) and the minimum amount due which is a small percentage of the total amount due, depending on the status of previous payments. If the person makes the payment on the total amount due, then no interests are levied on the next month. Such people would be better off with cards that have no annual fees. But many people are content with just paying off the minimum due month after month. This attracts interests in the next month, so an ideal card for such people would be one that charges a low rate of interest.

There are many things to know before getting a credit card. Some of these things are the annual percentage rate, the grace period before making off the entire payment, annual fees if any, the criteria for establishing finance charges, amounts of lay payments, charges for balance transfers into and out of the account, fees on cash advances and penalties for crossing the credit limit.

Retailers generally do not charge anything for using the credit cards in their institutions. So credit cards can be safely used there. There is also a buy back policy allowed with credit card purchases, just as with cash purchases. If the buyer is dissatisfied with the product, then he/she can withhold the payment from the said bank.

Debit Cards

Debit cards are now swiftly replacing credit cards as the buyers are becoming more and more conscious of the perils associated with credit cards. In today’s world, twenty percent of all credit transactions are done with debit cards. Debit cards are considered to be much safer than credit cards, because the person is using his/her own money. There are no bills to be paid at the end of the month, and no interests and scary late payment charges. For using a debit card, a person should first deposit some money in the savings account of the bank. Whenever a purchase is made, the money is deducted from that account. The card becomes useless when the money in the account becomes zero. Hence, the money needs to be put in continually.

But debit cards are riskier than credit cards if they fall into the wrong hands. Any person can remove the entire sum from the account equipped only with a debit card of someone else. The security is almost zero.

If you are wise with your money management, then both credit and debit cards could be really helpful. However for people with butter-fingers when it comes to money, debit cards are the better options.

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