Credit Card or Debit Card – Pros and Cons of Each

There’s no denying the fact that plastic money rules; but it is for us to decide what kind of plastic money we carry in our wallets. Debit cards or credit cards. Both have their pros and cons. Each brings its own set of advantages and disadvantages to your personal finance.

Pros of Debit Cards

• You don’t go in debt. It’s your own money that you’re withdrawing. So there is no question of late fees.

• Debit cards are more convenient than cash; easier to carry than a wad of notes in your wallet.

• A big advantage of debit cards is that it fosters responsibility; you are using your own money every time and you want to keep tabs on that dwindling account.

• Points, perks, and cashbacks can be considered peripheral advantages of using debit cards.

• In case your debit card gets stolen and your account is compromised, you are still shielded from massive loss as most banks will place a ceiling on your losses provided you intimate them early enough.

Cons of Debit Cards

• In case your debit card is stolen and fraudulent use occurs, you run the risk of completely losing your bank balance.

• If you use a debit card for certain transactions such as booking a hotel room or renting a car, the business owner may choose to block a substantial amount of your money till the account is settled, this can constrain your other activities that require money, especially if you are out of town.

• An overdraft can attract seriously high penalties; banks make a killing with the high interest rates they charge for overdrafts and the overdraft amount does not have to be a huge one. A $5 overdraft can set you back by $35.

• It is possible that your debit card is not covered by federal regulations and probably attracts a slew of fees such as ATM withdrawal fees, non-usage fees, fees for use at certain stores, reload fees, etc.

• Your liability for a loss increases every single day that you fail to report a debit card fraud.

Pros of Credit Cards

• You are basically availing a free short-term loan if you use your credit cards wisely; your lifestyle does not suffer. You increase your purchasing power with a credit card.

• With a credit card purchase you can often challenge the payment you have made if the product is not up to the mark; some credit cards will also insure your purchase and add an additional warranty over and above the manufacturer’s warranty. But remember that this is a policy decision by the credit card company and not the law.

• Credit card transactions are safe, far safer than using a debit card. Credit card fraud protection is stronger and if your card falls in the wrong hands, it won’t clean up your bank account. In fact, your credit card fraud liability is limited to $50 even if $15,000 have been siphoned off by a thief using your card.

• Credit cards open up the world of online shopping for you, you can order products and services from the comfort of your living room.

• Credit cards are a convenient means of payment for those who travel frequently; they are hassle-free and save you the bother of having to go through currency exchanges.

• Credit cards offer an exhilarating array of rewards that you can accumulate from your spending. There is enough variety here to meet your lifestyle and spending patterns.

• If you use a credit card and repay your credit card bills on time, you are actually helping your credit score and boosting your chances for a loan in the future should the need ever arise.

Cons of Credit Cards

• Credit cards encourage you to spend, this can send mess with your personal finances and send your monthly budgets for a toss.

• If your online credit card transaction is not carried out over a secured socket layer (SSL) then your credit card details can be intercepted online.

• If credit card dues are not paid on time, you attract interest fees and credit card interest rates are some of the heftiest going around, often being more than 40%. The entry barrier to a living-on-credit lifestyle is low but the exit barriers are pretty high with late fees, stiff penalties, and high interest rates in your path.

• Read the fine print when going for a credit card or you could find yourself mired in an assortment of fees that you just did not contemplate, these include processing fees, start-up fees, transaction fees, annual fees, fees to stay eligible for rewards if your card is delinquent and other such hidden fees that very often are not required by law.

• If you don’t pay on time, you damage your credit rating.