Credit Cards vs. Debit Cards: What do consumers use and why?

Debit and credit cards are payment methods that allow consumers to purchase items or withdraw cash. But what is the difference between these two cards, and which is more popular? Here we look at how debit and credit cards work and explore what it means to be payment savvy.


How do debit and credit cards work?

A debit card is linked to your bank, and transactions are deducted from the balance immediately. It means you can only spend what you have in your account. Debit cards are convenient because they can be used for online and offline purchases and at ATMs for cash withdrawals.


Credit allows you to borrow a specific limit to make purchases. You will then need to repay this amount, plus interest and any fees, later. They can be helpful if you need to make a large purchase and do not have the funds available immediately. However, it is essential to remember that you will be charged interest if you do not repay your debt in full each month. It can quickly add up, and you may repay more than you borrowed.


Which type of card is more popular?

In general, debit cards are more common than credit cards. A survey by the Payment Cards Center found that in 2017, 62% of Americans used a debit card, while just 48% used a credit card. It is likely because debit cards offer a more convenient and affordable way to pay for purchases. With a debit card, you only spend what you have, so there is no risk of falling into debt. Credit cards, however, can be expensive if you do not repay your balance in full each month.


Advantages to using a credit card?

There are some advantages to using a credit card over a debit card, even though credit cards are less popular overall. One advantage is that you can use a credit card to build up your credit history. If you repay in full and on time each month, this will help to improve your credit score. It can be helpful if you want to apply for a loan or a mortgage in the future.


Another advantage is that you may be entitled to certain legal protections. For example, if you use a credit card to buy an item that is faulty or not as described, you might get a refund from your card issuer. It is because of the Consumer Credit Act 1974.


Finally, some credit cards offer rewards or cash back when you use them. It means that you could earn points that can be redeemed for vouchers or get money off your following statement. Debit cards do not usually offer these types of rewards.


Advantages to using a debit card?

There are also some advantages to using a debit card over a credit card. One advantage is that you are less likely to overspend as you can only spend what is available in your account, and it can help you stay within your budget and avoid debt.


Another advantage of debit cards is that they usually have lower fees than credit cards. For example, you may be charged for withdrawing cash from an ATM or making a foreign currency transaction with a credit card, and these fees are often much lower or nonexistent with a debit card.


Finally, debit cards can sometimes offer additional protections against fraud than credit cards. If your card is stolen, you may only be liable for a maximum of $50 in unauthorized charges. With a credit card, you could be liable for the entire amount of any unauthorized charges.


What does it mean to be Payment Savvy?

Payment savvy people know how to effectively use different payment methods - such as credit cards, debit cards, and cash. It also involves being aware of the pros and cons of each type of payment method so that you can choose for your needs.


Payment savvy consumers are also aware of the fees associated with each payment method. For example, they know that credit cards typically have higher interest rates than debit cards. They also know that using a credit card to withdraw cash from an ATM can be expensive. Payment savvy consumers can avoid these fees by using the correct payment method for their needs.


Finally, payment-savvy consumers are always looking for ways to save money. For example, they may take advantage of rewards programs offered by credit cards. Or, they may use a debit card instead of a credit card when shopping online to avoid paying interest on their purchase. Payment savvy consumers know how to use different payment methods to save money and make purchases efficiently.


Which type is better for you?

There's no simple answer to this question as it depends on your circumstances. If you are concerned about debt, a debit card may be the better choice. However, a credit card may be the better option if you are trying to build up your credit history. It's worth considering whether you want to take advantage of any rewards or cash-back offers that might be available with a credit card. The best decision is to choose the type of card that suits your needs the most.

Lifestyle   PersonalFinance