Debit and credit cards are payment vehicles used instead of cash when you purchase items. They’re essentially a modern take on checks and are important for online payments.
Credit and debit cards provide the same benefits, though there are unique advantages to each. If you’re considering getting one or both, learning about them can help equip you for future use.
The debit card connects your bank’s checking account to you wherever you go. It has a finite capability — or spending cap — determined by how much money you have in the account.
“I’ve always been pretty careful about keeping track of my spending, so using my debit card is often the easiest way of doing that” - Andy Murray
Every time you use the debit card, it automatically deducts the money from your account. The nice thing about a debit card is that if you don’t have money in the account, it rejects your payment.
It’s the same as using cash — you can’t spend money if you don’t have money.
Overall, the debit card exists for convenience. Many of these also act as ATM cards, so you can withdraw cash when needed.
There are several debit cards, and people may have one or a combination. These are:
The advantage of a debit card is that it allows you to have your bank account ready for use at any time. It removes the need to go to the bank or an ATM to get cash to complete your purchase.
Nearly all physical and online retailers have the means to process payments using debit cards. Here are some other reasons why people use debit cards primarily:
The most notable disadvantage of a debit card is that you don’t have an accessible line of credit to use if your account runs out. You are limited to your bank account balance.
There are also some other considerations, including:
The credit card, as the name implies, connects to a line of credit. When you apply for one, you agree with a company.
They’ll provide you with a budget you can work within the card and a limit for what you can spend.
When you use the card, the company will pay the merchant on your behalf, and you’ll be billed for the payment each month. After you get the bill, you’ll see some fees and interest rates added for the convenience of having easily accessible money.
Since credit cards have connections globally, it’s easy to use them, and most merchants accept them for payment. It acts as a way to widen your financial capability beyond your bank account.
Some companies even give out incentives for the regular use of their card. For example, a company may offer cash back for every purchase of groceries or gas.
Rewards can vary depending on the card company.
As you improve your credit score, you’ll open the door to cards with better rewards and higher limits. These come with better payment terms, like lower interest rates and features that may not be available with your previous cards.
In many societies, credit cards are the norm, and many people own them because of the convenience they bring to their finances.
There are many types of credit cards as companies are looking for ways to offer more than the standard fare. Here are some that you may encounter:
The biggest reason to own a credit card is that it gives you more leeway to make purchases and extra time to fulfill payments. For example, if you need to make two purchases but only have the money for one, you can charge them to your credit card and pay later.
You’ll receive a bill at the end of the cycle of how much you owe the company and can settle the payment there.
You’re only required to pay the minimum to fulfill the company’s requirements, but if you don’t pay the full balance, you’re taking on debt. Credit cards usually charge interest rates, which will compound quickly if you don’t settle the bill early.
If you cannot pay the full amount, make sure you are paying more than the minimum to settle the debt.
Apart from the convenience of accessible money, there are other advantages to a credit card. These include:
While credit cards provide convenience to their users, they can also be a source of trouble if you’re not careful. People forget that using it is still borrowing money and getting into debt.
If you fail to make payments as you’re spending, it could spiral into problems for your finances. Credit cards are the primary source of personal debt for over 50% of individuals in the country.
Apart from that, there are also several reasons you have to consider before getting a credit card:
When getting a card, many people try to weigh between both debit and credit, deciding which is the better option for them. While one may fit better with your lifestyle, you don’t have to stay limited to it.
Many people own both debit and credit cards. You can use the advantages of the debit card for seamless payments when you have money in the bank.
Alternatively, a credit card can be helpful if you want to save money in the short term or don’t have the means to pay. Some merchants may not accept your debit card but can easily transact with credit cards.
Having both gives you access to the best of both worlds.
Even if you aren’t a big credit card user, it admittedly has advantages. Some people use credit cards to build their credit scores and get a chance at rewards.
They’ll get the cashback and other incentives, then pay for their usage. The decision is yours, but nothing prevents you from applying and owning both.
Debit and credit cards each have unique uses and advantages. A debit card allows you to connect your bank to a card to make efficient transactions.
On the other hand, a credit card opens up the option to extend your finances with a line of credit.
There are many types of these cards, and choosing from them will depend on your needs. Some credit card options may require you to build your credit score before you’ll be eligible.
Whatever you decide, know that having both can help you create flexible financial options. You’ll get the best of both worlds and minimize the risk that either may present.
If you’re looking to apply for a debit or credit card, consider applying for membership at 121 Financial Credit Union. We are a unique company in that we prioritize our members’ financial well-being over everything else.