The debate over the benefits of a credit card over a debit card or other way round has been a hot topic among financial gurus. While a few rate debit cards over credit cards, there are others who vouch for the benefits the credit card carries over the debit card. So, what does it actually mean to the individual card-holder?
Characteristic that differentiates between the two
While both the cards are lookalike and the acceptance at merchant outlets carry no difference, there is an intrinsic difference between the two. A debit card uses one’s own funds available in one’s account while the credit card (as the name goes) uses the funds from the credit card company. This fundamental difference leads to credit card score better over the debit card. Following is how it turns out to be a better deal to use it.
Credit Card Usage Will Help You Make Money
This is the biggest advantage apart from multiple others. As mentioned earlier, the card holder is using the issuing company’s funds to purchase and to top it up, gets anywhere between 15 to 45 days of interest free credit. This ‘buy now pay later’ provision on the credit card will help one earn interest on the funds that one would have used if the debit card was used for the transaction. A higher usage on the card will automatically lead to higher savings.
Apart from this, the card user also gets rewarded through various schemes and discount offers that the credit card companies extend to their customers. From regular reward points that can be exchanged for a variety of merchandize, there are cards that offer frequent flyer benefits, discounts on a variety of expenses ranging from dining to movies and travel to grocery. There are even cash back cards that refund money on particular transactions. These built in discounts make the credit card usage quite attractive.
Debit cards have a lower annual fee in comparison to credit cards. However, one needs to realize that while most credit cards today may not bill a fee if the threshold of certain expense is met, the same will not be the case with the debit card. The fee on debit card rarely gets waived. So this is another way the debit card becomes a more expensive proposition.
More less than often, debit cards limit the usage to a particular amount in a day. It means that despite having a higher balance in account, one may not be able to use it completely in one day if the need arise. On the other hand, the credit card can be used up to the given limit. Restrictive usage makes it insignificant given the fact that the funds are owned by the individual.
Back Up In Case of Exigency
Credit card comes handy in case of an exigency. One can without applying for a loan has access to the funds up to the prescribed limit and can use it at any point in time. On the other hand, in the event of having a low balance in the account will lead to making the debit card redundant.
A credit card fares better on safe guarding the card holders’ interest in comparison to a debit card. In the unfortunate even of theft and misuse of a credit card, the issuing companies give a protection that can cover the fraudulent usage for up to past 7 days from the time of reporting the loss. On the other hand, the debit card does not cover such issues. In case of a disputed transaction as well, credit cards score better than the debit cards.
Converting Spends Into EMI
A large ticket purchase can be converted into EMIs just by calling up the customer service number. The interest charged is far lower than the interest that one would be required to pay in case the credit was to be revolved. This denotes that one has access to credit without having to wait even for a moment.
Facilitates Better Credit Profile
It is a proven fact that the credit card usage helps in managing a good credit profile. This means that one would have faster access to funds from the lender of choice apart from getting a better deal in terms of interest and fee being levied on the loan.
Thus, by all means using a credit card has far more compelling reasons. If one can pay the total amount due every month, then it makes far more sense to use credit cards.
(By Arun Ramamurthy, Director, Credit Sudhaar)