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.
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.
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.
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.
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.
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.