We often have a choice when we are spending money as to whether we should use a credit card or a debit card. We all know that using cards is easier than cash, more convenient and more secure. However, we may not know what the main differences between the two different types of cards.
How Credit and Debit Cards Differ
Although both cards look very similar and can usually be used in the same places there are differences as to where the money comes from. With a debit card, when you draw out cash or pay for things using a debit card, the money will come straight out of you bank account. Therefore, it is paid for and you do not have to worry about it, although if the money is not in the account you will go overdrawn. With a credit card, the money you spend is not paid for until you get a card statement. Then you will have a choice of repaying everything or paying a minimum amount and being charged interest for borrowing money. This means that with a credit card you will have a certain amount of time of interest free credit, between when you buy the item and when you have to pay the bill but you also have the option of continuing to owe the money.
Best Uses for Credit Cards
A credit card has security features on it which means that it is safer to use online as you are less likely to lose money when you use it. You will also find that if you buy something online and it does not arrive or is not what you ordered and you have no luck pursuing this with the seller, you will be able to get a refund through the insurance that is automatically placed on the card.
A credit card can be very good to use to get interest free credit on all purchases. However, it is really important to make sure that you repay the card before you have to pay any interest on the outstanding balance. This is because you will find that the once you leave it unpaid the interest can be really high and this will outweigh the benefits that you get of the interest free credit on the account.
If you know that there is no money in your current account and you are in danger of going overdrawn, then it can be useful to use a credit card. As there will be a delay until you have to repay it, it will hopefully give you enough time to find the money that you need to pay it before the bill comes in.
Best Uses for Debit Cards
If you need cash, then it is much better to draw it out on a debit card than a credit card. Most debit cards will allow you to draw out cash for free form most cash machines. However, with a credit card there is likely to be a fee and you will be charged interest right from when you draw out the money. The charges work differently to purchases online or from shops.
If you have outstanding debt on your credit card that you cannot afford to repay, then it is better not to use your credit card but to use the debit card instead. This is because you will start being charged interest on the credit card purchase. However, if you have an overdraft then using your debit card could be even more expensive as overdraft rates tend to be higher than credit card interest, but you will need to check this out to be sure.