Although they offer similar features, credit cards and debit cards are not as alike as you think.
Credit cards are issued by banks or credit card companies. To get one, you go through the whole process of applying for a card and proving your capacity to pay. When you use a credit card, you are doing so with borrowed funds that must be settled in full or partially on your next payment due date.
On the other hand, debit cards can only be issued by banks. To get a debit card, you have to open a savings or a checking account. The ATM card which you use to withdraw money is the same card you will use for debit transactions. When you use a debit card, you are using funds you already have in your own account.
If you own both, there are instances when using one makes more sense than the other.
Use your credit card when:
You are shopping online.
Credit card companies offer security features that would be especially useful when you are shopping online. When you make an online purchase using your card, there is a lag time during which a verification of the purchase is made, allowing you to dispute a charge. Further, credit card companies can offer insurance against fraudulent purchases for a nominal fee.
You need to buy time between purchase date and payment date.
When your cash is tight but you need to make an immediate purchase, say for emergencies or for important items such as medicine or tuition fees, then your credit card will be most helpful. It gives you the extra elbow room right when you need it.
‘Gives’ is your best option.
Credit cards allow you to amortize payments over a period of time, ranging from as low as 3 months to as long as 2 years. During promotional periods, you can avail of 0% payment terms which allows you greater flexibility in setting budgets. In contrast, this cannot be arranged when you use a debit card.
You want to buy goods to be used in the future.
For purchases like tickets and hotel bookings that are meant to be used in the future and may be rebooked or cancelled, credit cards make a better choice. Should your plans change, you will be able to get your refund through a reversal of charges on your credit card.
You want to make a recurring payment.
When you want to make regular automated payments, usually for payments made for subscription, utilities, service providers, or voluntary donations to a charitable organization, it makes more sense to use a credit card. This is particularly helpful when you want to stop the recurring payment, with the card company able to reject payments billed by the merchant.
Use your debit card when:
You don’t have enough cash in your wallet for small purchases.
A debit card is a convenient tool to have. It acts like an extension of your wallet, saving you from having to make that trip to the ATM machine to withdraw money.
You don’t want to rack up additional debt.
When using a debit card, you are actually using money that you already have. Using it allows you to control your spending and live within your means. If you want to cut down on borrowings but don’t want to carry cash, then you should use your debit card.
You want to withdraw money abroad.
Sometimes it is cheaper to withdraw foreign exchange from your own account once you to get to your destination instead of charging your credit card. This is because conversion rates for withdrawals are sometimes lower than that charged by credit card firms. However, there may be corresponding charges for these withdrawals so it would be best to check with your bank and credit card provider before proceeding.
Whether you choose to pay with a credit card or make a debit card payment, you may be entitled to rewards or rebates. Credit cards regularly offer rebates and rewards. When you are keen to accumulate any of these, or when the rebates being offered are superior to that when you pay in cash, then a credit card makes a better choice.
As banks try to get more of its clients to pay with a debit card, they too are throwing in similar rewards, so in these instances, cash is no longer king. In any situation, always look for the best value for your hard-earned money.
source: www.abs-cbnnews.com
