What’s a debit card?
If you prefer a more budgeted approach to your finances and are willing to work with your funds with a cap, debit cards are a far better option for you when comparing debit and credit cards. With a debit card that is linked to your checking account, accessing your funds becomes way easier. The card can be used to directly pay the vendors or withdraw money without going through the hassles of paperwork like the old times.
Debit cards can be used anywhere with the availability of a card reading machine or an ATM. A debit card can also be used during online purchases. While the older designs of the debit cards allowed the user to pay with a swipe, it has improved with advancements that let you pay by just tapping the card. You can also avail a digital version of the debit card to avoid carrying it around.
When you use a debit card, the funds are subtracted from your bank account immediately or within a maximum frame of 24 hours. There are also prepaid debit cards that are not linked to any accounts. These cards must be loaded with money before you can use them, like a Forex or travel card.
Pros of a debit card
- Convenience: Debit cards provide a more convenient way of making purchases and withdrawing cash from ATMs. They are more widely accepted by offline and online merchants, making them a way more practical choice for your everyday transactions.
- Budgeting: Since debit cards are linked to your bank accounts, the account holder can only spend the money they have. This can help individuals, especially students, stick to their monthly budgets and avoid accumulating any kind of debt.
- No Interest: Unlike credit cards, debit cards do not let the account holder borrow any money. The money spent is their own money that is in the bank account. So, naturally, there is no interest that is being charged on your purchases.
- Overdraft Protection: Many debit cards offer overdraft protection, especially if you have a student bank account. This allows the account holders to make additional transactions during emergencies, even when their account balance is insufficient. However, it is important to remember that your overdraft protection can have associated fees.
- No Monthly Bills: Debit card holders don’t receive monthly bills for their purchases. Since the transactions are directly done from their bank account, the money deducted belongs to the account holder. This can be beneficial for those users who prefer a simpler financial arrangement.
Cons of a debit card
- Limited Fraud Protection: Debit cards may provide very limited fraud protection compared to a credit card. When unauthorized transactions occur, the process of resolving the issue and getting back the lost funds can become more challenging since the deduction happens from the user’s bank account directly.
- Limited Rewards: Compared to credit cards, debit cards generally offer fewer rewards and perks. Credit cards often provide perks like cashback, travel rewards, and other incentives that a student might find very useful during their academic years.
- No Credit Building: If credit building is one of your main priorities, using a debit card doesn’t help. To build a credit history, one must use a credit card. So, make sure you have one before the end of your academic journey.
- No Grace Period: Purchasing with a credit card means you get a grace period before the interest is charged. However, with debit cards, upon making a purchase, funds are deducted immediately from your account, providing no grace period.
What’s a credit card?
A credit card looks exactly like a debit card, but that’s all they have in common. Credit cards are used primarily for payments during online purchases and other regular transactions but rarely for cash withdrawals. You can also withdraw cash with a credit card, which is referred to as a ‘cash advance’, but most people prefer having a debit card for ATM transactions.
Unlike a debit card issued with a bank account, one has to apply and qualify for a credit card. Credit cards have specific limits assigned to them that are decided by the provider based on the applicant’s credit history.
When you use a credit card, the credit piles up as a debt that must be paid fully, along with an interest at the end of every month. Since credit card interest is the main source of revenue for credit card companies, credit card debts are known to have interest rates that are too high.
Pros of a credit card
- Builds Credit History: When used responsibly, a credit card can help you build a positive credit history. This is crucial for any university student since it can help them with future loan approvals, favourable interest rates, housing opportunities and much more.
- Rewards and Perks: Usually, credit cards offer many rewards programs, including cash back or other perks, such as travel benefits, which can provide financial benefits for cardholders. This can be especially helpful for someone living on a student budget.
- Emergency Fund: Credit card transactions are basically borrowing a certain amount from the bank or credit card provider. Thus, the card can serve as a financial safety net during emergency situations when you might not have immediate access to cash or enough money in your student account.
- Security: Credit cards often come with great security features. Thus, the card offers solid fraud protection and the option to dispute unauthorized charges and transactions easily.
- Grace Period: Unlike instant deductions of a debit card, credit cards usually have a grace period. If you can pay your balance in full during this period, you don’t need to pay any interest charges.
Cons of a credit card
- Interest Rates: Since every credit card transaction works like a loan, the user is subjected to interest if they don’t pay their full balance during the grace period. Credit card loans usually have a really high interest rate, and thus, the debt can get out of hand if the card is used irresponsibly.
- Fees: Some credit cards come with multiple additional fees that can become burdening for a student especially. The fees can include late payment fees and cash advance fees, which can add to the cost of using a credit card.
- Impact on Credit Score: Irresponsible usage of credit cards, such as your payments being late or maxing out your card limit, can negatively impact your credit score, thus damaging your credit history.
- Temptation to Overspend: Since using a credit card is very easy, it can lead to impulsive and unnecessary purchases, contributing to financial strain and bad budgeting. These can create massive financial issues if you are a student.
It may be impossible to decide which card is better, but deciding on a better accommodation is now an easy job with us!
Book through amber today!
Visit Us
Debit Cards Vs Credit Cards: What’s better?
Debit and credit cards have their advantages and disadvantages. In some scenarios, a debit card may be preferable over a credit card and vice-versa. For example, while travelling, people may prefer using a credit card as many resorts, airport transfer services and other services may only accept credit card payments. Credit cards are also especially handy in case of an emergency. At the same time, a debit card may be a great choice for better and more budgeted financial planning. Mastercard and Visa even offer cards that can be used as debit and credit cards! So, comparing the two and deciding which is better overall is nearly impossible. But understanding how these two cards work, you can make the right decision and manage your finances better.
Both debit and credit cards are essential tools of financial management. While a debit card is your key to having a more accessible bank account, a credit card can be a lifesaver during an emergency and build credit. Thus, in conclusion, with a little bit of responsibility, you can have both cards and have your finances on point every time!