There are two types of plastic financial cards available in the market that aids you with payments, namely, credit cards and debit cards. In this article, we have covered the difference between these two financial tools. Keep reading to know the differences.
What is a credit card?
A credit card is a financial tool offered by many credit card issuers to the general public at large. It helps you in borrowing funds easily from the issuer to make purchases. It is bifurcated into two categories namely secured and unsecured credit cards. You get a credit limit on a credit card that you can utilize to pay for the transactions. The money that you get on a credit card is not your money, you borrow it from the issuer, which means you will have to repay it on time. For a better understanding of credit cards read below-given the pros and cons of a credit card.
Pros of credit cards:
- Availability of funds 24x7: With a credit card you will never have to worry about the nonavailability of funds as you get a credit limit on your card that you can use anytime to pay for the transactions. Even if you have used up the credit limit you can still use your card but using it beyond the credit limit is not advisable.
- Build credit score: A credit card helps you in building a credit score from the scratch. Using it to pay for the transaction and repay the bill on time impacts your credit score positively, building your credibility.
- Earn rewards: With a credit card, you earn reward points/ cashback/ travel points, etc as per your credit card’s rewards program. You only earn incentives when you use your credit card for those transactions that let you earn rewards in return.
- Enjoy exclusive offers and discounts: From time to time you get exclusive deals and offers on the credit card that you can avail of to maximize the benefits of your card.
- Interest-free Period: You get an interest-free period which gives you a window to accumulate the funds to repay the credit card bills.
Also Read: How To Use Credit Card Interest-Free Period Wisely
Cons of credit cards:
- Debt trap: If you fail to pay the credit card bills on time and have a high credit utilization ratio then there are high chances of you ending up in a debt trap. This will also be going to have a direct impact on your credibility as your credit score will affect negatively.
- Hidden fees and charges: Credit cards come with hidden fees and charges which can cost you a fortune. Before taking a credit card you must read the most important terms and conditions. Not knowing all the fees and charges can create an unfavorable situation for you.
What is a debit card?
A debit card doesn’t let you borrow funds, rather it’s a payment card. You add your own money to a debit card used to pay for the transactions. On opening, a current account or savings account with a bank you get a debit card in the welcome kit. A debit card is also known as an ATM card. Keep reading to know more about debit cards’ pros and cons.
Pros of debit cards:
- No debt trap: Since you are using your own money with a debit card then there is no chance of falling into a debt trap.
- No interest charges: You do not have to repay the used amount and there are no interest charges on a debit card. However, if your card requires a minimum balance then you need to maintain it otherwise you will be charged a fee.
- No overdraft charges: You can never use your debit card beyond the deposited amount in your account which means there will be no overdraft charges.
Cons of debit cards:
- Do not help in building a credit score: With a debit card you cannot build a credit score as you are using your own money for the payments and not borrowing it from the card issuer.
- No rewards: On a debit card you do not earn reward points/cashback/travel points, etc. on making the transactions. This benefit is only provided on credit cards.
Additional Reading: A Complete Guide To Using Your HDFC Credit Card
