Credit and debit cards… how are they different?

Some people may not know what differentiates debit card from credit card.  Of course, there are many differences between them though both are accepted at the same place. They both offer convenience. The fundamental difference between a debit card and a credit card account is where the cards pull the money. A debit card takes it from your banking account and a credit card charges it to your line of credit.

Credit card is a card that allows you to borrow money in small amounts at your credit card company. You use the card to make your basic transactions. The credit card company then charges you interest on your purchases, though there is generally a grace period before interest is charged if you do not carry your balance over from month to month.

In the past many people felt that you needed a credit card to complete certain transactions such as hire a car or to purchase items online.

They also felt that it was safer and easier to travel with a credit card rather than carrying cash or trying to use your checkbook. However debit cards offer the same convenience without making you borrow the money to complete the transactions. It can be difficult to determine when to use a credit card or a debit card.

It is better to use your debit card whenever possible, because it will prevent you from accidentally falling into the credit card trap. With a debit card any money you spend is automatically taken from your savings or current account. This means you must have funds in your account to cover the full cost of any transactions that occur. In some cases you may not be able to complete a transaction if there are no available funds.

When you can pay cash for most items, you are doing better financially. Some car hire agencies and hotels may still request a debit card over a credit card because they want to have a card where they can bill you for damages to their property. Be sure to check with the hotel or agency before you travel to make sure you can use your debit card instead of your credit card.

They may look visually similar, but there are some significant differences between how a credit card and a debit card work, that are worth keeping in mind. When you’re weighing up your options it’s important to get all the facts and understand how each card could be a fit for your finances.

Unlike a debit card, most credit card types are not linked to your current account, says experts. While a debit card usually takes funds

from your account straight away, a credit card allows you to purchase things today and pay for them later. Every month you’ll receive a statement showing your outstanding balance. You can either pay the bill in full by a set date and incur no interest, or you may be able to make a minimum payment and spread the rest of the repayments out over time.

It’s important to remember that if you don’t pay off the balance in full every month, you will be charged interest on the outstanding amount, and it will take you longer to repay the amount due.

Whereas debit card purchases deduct money from your savings or current account, from funds that you already have available. Credit cards run up an amount of money that you will owe in the future, a balance that you will be required to pay back at a later date. As mentioned above, an interest rate is applied to any balance that is not paid off in full by the monthly due date, which increases the total amount you owe over the long-term.

It is therefore important to practice responsible spending when you  decide to make credit card purchases, and to take stock of your personal finances to determine if you will be able to repay the full outstanding  balance on time.

TIAMIYU ADIO ISMAIL