Most of us use a plastic card to complete transactions. But should you regularly pay for your purchases with a credit or debit card?
The choice is entirely personal. Both credit cards and debit cards offer the ability to swipe with ease. But these cards have different functions that will draw you to one side or the other. So which plastic is right for you?
In collaboration with Credit Karma Money, we will investigate the differences between debit cards and credit cards. Plus, how to choose which one is right for you.
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Credit Cards: What You Need To Know
Credit cards are a widely used financial instrument. The small rectangular piece of plastic or metal is issued by a financial institution. Once issued, the cardholder can borrow money up to a certain limit to cover purchases.
At the end of each month, you will receive a single invoice for the purchases on your credit card. Credit cards carry high interest rates and the potential for lucrative rewards.
Take a closer look at the advantages and disadvantages of a credit card here.
Advantages of a credit card
When using a credit card, there are some key benefits that you should be aware of.
First, responsible use of your credit card can build your credit history. Responsible use of credit cards includes consistent, punctual payment. In addition, a low credit utilization rate can improve your credit score.
In addition to the potential credit benefits, credit cards often offer guarantees or insurance on items that you purchase with your credit card. If you are looking to purchase a relatively expensive item using your credit card, it is worth checking to see if the card has an extended guarantee.
In addition, you can expect great fraud protection with a credit card. You will also find that many credit cards offer their members extensive perks. With the wide variety of reward cards on the market, you can earn rewards ranging from travel credit to cashback.
Disadvantages of a credit card
Of course, every financial product has its drawbacks, and credit cards are no exception.
Here are some of the drawbacks to be aware of when opening a credit card. Depending on how you use a credit card, one mistake can be that you only need one credit card, which is that you only have to make one minimum payment each month. If you’re only making the minimal payments, it can be a slippery descent towards increasing credit card debt.
With the high interest rates often associated with credit cards, it’s all too easy to let your credit card debt soar quickly. Additionally, growing credit card balances can have a negative impact on your creditworthiness.
After all, the fees associated with a credit card can add up quickly.
Debit Cards: What You Need To Know
On the other side of the debate are debit cards, which are another popular form of payment. A debit card works by allowing transactions to be made directly from your checking account. Usually, the money needs to be instantly available in your checking account to complete the transaction.
Let’s take a closer look at some of the pros and cons of debit cards.
Benefits of a debit card
If you’re worried about slipping into credit card debt, a debit card can help you avoid this possibility entirely. Since debit cards don’t act like a financial institution loan, you can never spend much more than is available in your checking account.
Debit cards are also great for consumers looking to avoid fees. In most cases, there are fewer fees with a debit card than with a credit card. For example, you can easily find a debit card with no annual fee.
Plus, you don’t have to have great credit to get a debit card.
Disadvantages of a debit card
Of course, debit cards have some drawbacks.
In most cases, debit cards offer less consumer protection than credit cards. For example, not all debit cards offer a security feature that allows you to immediately block your debit card if you encounter suspicious activity. However, that can change. Credit Karma Money offers the option to block your debit card immediately.
Also, it’s uncommon for debit cards to offer rewards such as cashback or travel credit for your expenses. This can be frustrating when you want to get the most out of your expenses. But Credit Karma Money offers debit card users the opportunity to win a competition.
Another notorious complaint from debit card users is that accidental overspending can result in overdraft fees. With an average overdraft fee of $ 33.47 in 2020, those inconveniences can add up quickly. However, it is possible to find debit cards that won’t charge you overdraft fees.
After all, if you decide to use a debit card, you will not have the option to build up your balance.
With all of these downsides, it’s important to know that finding the right card can remove most of your worries about the potential downsides of debit cards.
Debit Cards Vs. Credit Cards: Which Is Better For You?
The differences between a credit card and a debit card are relatively short and sweet. However, the choice between the two types of plastic will depend on your personal preferences regarding your money habits.
If you are wary of potential pitfalls that could lead to your credit card debt accumulation, a debit card may be a better choice. However, if you want to maximize your spending with substantial credit card rewards, a credit card is probably a better option.
Take some time to weigh your options before making this important choice between two useful financial instruments.
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