Credit cards and debit cards are two of the most common ways of making payments without involving real paper or coin money. They let you avoid having to carry huge sums of cash on you whenever you wish to purchase something of high value. Both cards have their place in the world as viable payment methods.
But credit cards and debit cards do not work the same way. They have their advantages and drawbacks that may convince or hinder you from choosing one or the other. Among them, a credit card seems more viable to link with your bank account than a debit card. We look at their working to show why you should use a credit card instead of a debit card.
A credit card works as a link to borrow money from a bank or other issuers. It lets you purchase without making a direct transaction from your bank account. Instead, the amount you pay gets sent over by the credit card issuer at the time of the payment. Your bank account balance management comes at a later period.
One notable thing is that you have to pay back the spend amounts with interest on top. As such, you have to spend wisely to avoid accumulating debt.
Debit cards work differently than credit cards. They use your bank account balance at the time of a purchase instead of taking a loan from the bank. As such, you can never spend over the amount you have in your bank account. It avoids accommodating debt or having to calculate how much you can spend without going towards a negative bank balance.
But the same also means that there are more restrictions on debit cards. They do not offer as much a variety of services as credit cards.
How Credit Cards Trump Debit Cards
The use of credit cards is advantageous to debit cards in several ways. They let you spend in a way that is much easier and safer. The reasons you should draft a credit card instead of a debit card are:
When you look at the possible charges and interest on credit card purchases, they seem more expensive than debit cards. On a credit card, you have:
- Monthly interest
- Annual fees
- Over-limit fees
- Late-payment fees
- Other penalty charges
It is not a given that you will have to pay all of these charges with the use of a credit card. Some fees, like the monthly interest and annual rates, need paying periodically. Other costs depend on how you spend using your credit card. As long as you do not go on a wild spending spree, you need only pay the periodic charges on your credit card.
Meanwhile, there is a lot more to debit card costs than meets the eye. They vary depending on your methods of spending, as well as the type of purchase. As such, they are not as straightforward to use as credit cards. In hindsight, credit cards may seem costly in comparison, but there is more of a chance of a debit card costing you more than credit cards.
No Overdraft Costs
The payment method of a credit card is independent of your bank account details at the time of purchase. As such, there are no risks for a retailer to process your transaction, as the bank or credit card issuer transfers the amount without a hitch. There are no further complications with payment through a credit card.
On the other hand, debit cards have an air of uncertainty about them during dealings. It takes a while longer for debit cards to process transactions. The retailer can use this as an opportunity to implement overdraft charges on your purchase, which can cost you a lot more than your actual purchase. You can avoid the inconvenience with the use of a credit card.
Credit Card Usage Benefits
Credit cards have a plethora of rewards for users who spend wisely. It is a given that the credit card issuer will offer a handful of benefits for the use of your card. Such rewards vary for different credit card providers, and you will have to inquire about the particulars of it from your credit card agency. But a few of the common benefits are:
- Additional warranties
- Better purchase insurances
- Cash-back rewards
- Reduced airfares
- Discounts and bonuses on purchase
Only recently, debit card providers have come to realize the importance of such benefits for users. They have started to offer some rewards for the use of their services. But it will take them quite a while to catch up to the range of benefits of credit card usage. Hence, for the moment, there is a lot more you can get out of a credit card than a debit card in the long run. It depends on your credit report, which you can issue through your credit card provider.
Possible Cash-back on Purchase Disputes
Many a time, an item does not fulfill the purpose you imagined at the time of its purchase. It can be down to a defect in the piece itself, or it may not have a stated capability. In such cases, your credit card company may be able to refund or provide a cut on the purchase amount for the item. It is down to the cash-back and insurance benefits for credit card users.
Debit cards do not offer any such facilities. Once you make an item purchase with a debit card, there is no going back on the amount you paid. You cannot appeal to the retailer who sold the item or your debit card provider for the possibility of a cash-back. Hence, the use of credit cards can save you a lot of money on underwhelming purchases.
Better Card Insurance
Credit cards come with safety measures upon their loss or theft. It includes a minor cash penalty on your report, provided you do it timely. It can become a hefty fine if you are late in informing your credit card provider about the loss. The informatory period and the penalty fee varies for different credit card agencies. Hence, it is worth checking such information from the bank or agency itself.
As for debit cards, there are massive fines on the loss of the card. You can lower the fee with a timely contact with the debit card provider about the issue. But the period of informing them is much less in comparison to credit card loss. As such, there is a better chance you can avoid accumulating further damage on the loss of your credit card compared to a debit card.
Established Contacts with Agencies
There is a better recognition of the use of credit cards among service providers, especially car rental agencies. Whenever you rent a car, there are fines for any damage while the vehicle is under your supervision. Your credit card provider can help out in case of an unfortunate accident of the car. On top of that, you need not worry about any inconvenience on the part of the rental agency. They will cause you no trouble as credit card rental amounts are reliable to them.
You cannot enjoy such luxuries with the use of a debit card. The debit card providers give you no backup in case of an accident or damage to the rented car. Also, you are likely to have overdraft charges on top of the rental fees for your vehicle with payment from a debit card. It is an inconvenience you can avoid with the use of a credit card instead.
More Flexibility and Safety Standards
The flexibility of credit cards stems from the options in which you can draft a credit card. One of these is the virtual credit card. It has a similar capability to the physical credit card but is advantageous for users in its safety.
You can also get yourself a virtual debit card, but it has a lot fewer features in comparison to a virtual credit card. A virtual credit card can help you in several ways to make your transactions, including benefits and safety standards such as:
You can set a virtual credit card to work only once throughout its existence. Once you process a transaction with the credit card details, it expires. The same credit card particulars no longer remain valid for further purchases. It is one of the many safety standards you can set when generating a credit card.
There is no such customization when it comes to a virtual debit card. The debit card issuing agency controls the number of times you can use the virtual debit card for transactions. If the details of your virtual debit card fall in the wrong hands, it can cause you a lot of damage. Such is not a risk with a virtual credit card.
No Initial Cost
Virtual credit cards cost you nothing upon their generation. The virtual credit card issuing agencies let you have them for free. Upon their expiration, you can go back to the same agency for another one through the same process.
Virtual debit cards do not work the same way as their credit card counterparts. The insurance for the use of a virtual debit card comes from your bank account balance. The issuing agency takes a small cut to generate your debit card details. You can avoid this by opting for a virtual credit card instead.
Limited Validity for More Safety
You can set the safety standards for your virtual credit card at the time of its generation. It does not work without your authorization. As such, there are no worries with its use, even if you lose the credit card details. The card validity is in your hands. No one else can use it once the card reaches its set balance limitations.
The safety standards for a virtual debit card do not compare with the credit card ones. You cannot deem a debit card invalid if someone else uses your card’s details to make a transaction. Such a misfortune is avoidable with the use of a credit card instead of a debit card.
Virtual credit cards do not physically exist. You can only input their details in online transactions. Hence, you may feel there is a credibility issue when using such a credit card. But there is no worry about the reception of these cards. They are valid for payment with almost all online stores. There are major commerce sites that provide a customized virtual credit card as well, such as PayPal and eBay. It will give you a better sense of their acceptability in the market.
In contrast, virtual debit cards are not as popular for online payments. They face a similar issue of overdraft charges and blockages from retailers. As such, they are not as reliable as credit cards for a smooth transaction process.
Limit the Card’s Credit
You can set a fixed balance for a virtual credit card to make transactions. Throughout the existence of the credit card, this amount is flexible per your desire. It maintains a cap on the maximum spending through the credit card. As such, you can limit the economic damage if your card details were to slip to someone else.
Virtual debit cards also come with a cap as their transaction limit. They come in the form of prepaid debit cards. But the flexibility issue comes in that you cannot set the maximum balance for the debit card. The issuing agency sets the amount for you. As such, there is an added obligation to use up the debit card to its limit to get it to expiration. Such is not the case with the use of a credit card.
Credit Card Currency is Never an Issue
With the structure of the modern system of online purchases across the world, the currency and exchange rate come into consideration when making a transaction. But with a virtual credit card, you can rely on the issuing agency to make the calculations for you during the purchase.
With debit cards, your linked bank account must have the capability of containing multiple currencies. It is not the most advantageous bit of credit cards over debit cards. But it contributes to a smoother and quicker transaction process when you buy an item local to another region.
What it All Comes Down To
The use of a credit card is a significant upgrade to a debit card when it comes to the quality of life. It makes for smoother purchase processes, with many benefits on top. As a debit card user, it is the right time to evaluate the choice and switch to a credit card.