Debit Card vs Credit Card Management

 

Debit Card vs. Credit Card Management

Economics, many a time, just call for choosing the correct tools in management of your income. There is; Take credit card and debit card for instance, they are two forms of payment methods, each with it owns plus and minus. In this article, debit and credit card usage is compared between the two to give you the benefits and drawbacks of each so that you can make the right judgement.

Understanding Debit Cards

Debit cards are directly connected to individuals’ accounts; hence, they are connected to money. Pay now results in the fund being debited from your account when you make a purchase. Here are some key points about debit cards

Here are some key points about debit cards:

Advantages of Debit Cards

1. Direct Access to Funds: Debit cards allow one to pay with the money he or she possesses and has no capacity of making the debt money. For Instance, let us assume that one has one thousand Dollars to invest. But if you have zero in your checking account as far as your credit limit is concern you cannot spend up to $ 1,100. 00 or more.

2. No Interest Charges: It is self-funded thus there are no interests charges unlike in the fixed assets where the company has to pay interests. This can save you a lot of money because credit card charges anything from 15% to 25% per annum.

3. Easy Budgeting: True to this, transactions are deemed and withdrawn on the spot hence facilitating tracking of expenses. For example, setting up the budgeting application connected to the debit card can be useful as it updates the balance and spending at the moment.

4. Limited Risk of Overspending: You can only spend as much as there is in the account meaning you cannot make expenditures that go beyond the amount that is in the account and thus avoiding debts.

Disadvantages of Debit Cards

1. Limited Fraud Protection: There is usually a higher level of protection against fraud as can be observed in credit card compared to debit cards. For example, if your debit card details get to be stolen, it may take time before you are refunded your cash.

2. No Credit Building: This is to mean, hence, that the usage of a debit card does not contribute towards the building of your credit score. If you aim at creating or boosting credit, depending on the debit card will not help you accomplish this.

3. Overdraft Fees: This is normally felt when you have overdrawn your account and you are approved to do so, but you are charged an overdraft fee. That is why for $100 gained, an overdraft fee can cost $35 for one transaction, and that turns out to be a lot of money rather quickly.

Understanding Credit Cards

Credit cards are monetary facilities that enable a user to obtain a certain amount of money from a credit card provider up to the limit. As defined by the contract signed with the bank which provides a loan, the money borrowed have to be repaid back, sometimes along with the interest. Here are some important aspects of credit cards: Below are some of the features of credit cards:

Advantages of Credit Cards

Credit Building: Proper utilization of the credit card will lead to a creation of and enhancement of a good credit status. For instance, alternative payment history is how timely you pay your bills as well as the credit utilization rate, which should not exceed thirty percent of the total available credit.

2. Rewards and Perks: In this case, numerous credit cards allow the client to get rewards, money back, and other types of bonus. For instance, the spent money can be rewarded by cash rebate of 1%-5% on the money spent, one can gain points for travelling.

3. Fraud Protection: Credit cards are relatively safer as far as the misuse or fraudulent activities are concerned as compared to debit cards. Should there be some charges made without your consent, you are not to blame, and no amount is deducted from your account.

4. Emergency Fund Access: Credit cards can also be very useful in case of an emergency when one needs cash in a short notice. For instance, if you get an emergency of car repair which amounts to $500, a credit card acts as the quickest solution for the same.

Disadvantages of Credit Cards

1. Interest Charges: But if you are to hold a balance, this will attract what is known as an interest charge which can at times be very expensive. For example, $1,000 balance at 18 % interest means that $1,000 of credit balance can generate $180 in the form of interests annually in case the balance remains unpaid.

2. Risk of Debt: Credit is identified to have an effect of making people borrow and spend beyond their means thus accumulating colossal amounts of debt. For instance, failing to pay the amounts pilled in the account within the required time definitely leads to high balance and greater interest charges.

3. Annual Fees: Some credit cards attract certain fees, which have to be paid annually among them being the annual fees. Such fees may cost as low as $25 up to $ 500 and even more depending on the type of card and its features.

4. Complex Terms: This section of the text offers an argument about credit cards with reference to the confusing and unclear general terms of service For example, comparison of various APRs like the one applicable to purchases, balance transfers and cash advances is made difficult.

Relating to the Debit and Credit Card Management

Frequently Asked Questions

1. Would it help in the improvement of credit score, if I use my credit card to pay for the transactions?

Yes, paying with the credit card regularly and paying your bill on time and ensuring that your credit card balance is low can help boost the credit score.

2. Is there any charges that we are required to pay for the use of debit cards?

Unlike most credit cards, debit cards have little to no fees but the overdraft fees, ATM fees, and international transaction fees. For instance, $2 as fee for withdrawing cash via an ATM that is affiliated to a different bank from the provisions of the card issuing bank. 50 per transaction.

3. Which card is safer to use online: credit or debit?

Prepaid cards are usually less protected against fraud; therefore, credit cards are more secure for online shopping. When credit card information gets stolen, it is easy to challenge the charges procedurally without affecting the amount of money available.

4. What measures can be taken to minimize the interest charges on a credit card?

 To keep interest rates off your back, make sure that you settle the entire balance of the credit card by the statement due date. Thus, this practice helps you take advantage of the convenient way to make payment with the credit card without having to pay more than what is required.

5. Can one use both a debit as well as a credit card?

 Yes, it is possible to have a combination of both and that would be flexible and contain the advantages of both types of cards. For instance, your debit card can be used for your daily and regular expenses and you credit card for the large expenditures and in case of an emergency.

Conclusion

Deciding between a debit card and a credit card depends with the activity of the individual as regards to his/her money matters. Debit cards are the best for rationing your expenditures to burn no money than you possess and do not entail debt, such credit cards enables the building of credit and contain reward programs. Comparing the two it becomes easier for one to manage his/her resources as well as know the benefits and drawbacks of the two.