What Is a Debit Card?
Debit cards offer the convenience of a credit card but work differently. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their bank, and it is transferred to the merchant’s account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through.
You will have a personal identification number (PIN) to use with your debit card at stores or ATMs. However, you can also use your debit card without a PIN at most merchants. You will sign the receipt like you would with a credit card. Below are some other facts regarding debit cards.
You won’t pay interest on your purchases.Your credit history will be unaffected by debit card spending.Paying with debit will take the money from your account pretty much immediately.
What Is a Credit Card?
A credit card is a card that allows you to borrow money against a line of credit, otherwise known as the card’s credit limit.3 You use the card to make basic transactions, which are reflected on your bill; the bank pays the merchant, and later, when you receive your bill, you pay the bank.
You will be charged interest on your purchases. To avoid paying interest, don’t carry a balance over from month to month. Credit cards have high interest rates, and your credit card balance and payment history can affect your credit score.
Advantages of credit card:
Convenience: Credit cards eliminate the need for carrying cash all the time. You can use the card for payment in most places.
Future loans: If you plan to opt for any loan in the future but have a low credit score, the card will help you improve it.
Rewards: Using a credit card enables you to receive many rewards in the form of points, cash back, and other facilities.
Spending flexibility: Unlike debit cards, a credit card’s spending limit does not depend on your bank balance. This flexibility is helpful when you need to make significant purchases and do not have enough money in your account.
Disadvantages of credit card:
Transaction charge: When you use the card in a shop or restaurant, the credit card company charges the establishment a transaction fee. The business includes this charge in your bill; so, eventually, you end up paying it.
Maintenance charge and other fees: Some credit card companies charge you a flat annual maintenance fee. They also charge a minimum spending fee if you do not spend a fixed minimum amount in a year. Additionally, you need to pay a 3.5% cash advance fee when using the card to withdraw cash from ATMs. Moreover, they charge interest on the withdrawn amount per day until you pay the credit card bill.
Minimum payment amount: Credit card bills come with a ‘minimum amount due’ option. But, if you pay only the minimum amount, the company will charge you interest on the remaining balance next month. Suppose your credit card bill amount is ₹10,000 and the minimum amount due is ₹500 (5% of the total due). If you pay only the minimum amount, the company will charge you a 3% interest on the remaining ₹9,500. So, you would have to pay an additional amount of ₹285 in the following month. If you keep paying only the minimum due amount every month, it will take you 34 years to pay off the bill! The total amount will be ₹23,254 (₹10,000 + interest).