Both debit and credit cards are widely used for making payments, whether in stores or online. While they may appear similar, they function differently. Understanding how each works and when to use them is crucial for making informed financial decisions. Let’s break down what each card does and when it’s best to use them for smarter spending.
Similarities
Debit and credit cards look pretty much the same – they’ve got your name, card number, and CVV number. Both are super convenient for shopping, whether it’s in stores or online. They also come with security features like chips and PINs, so you’re covered if something goes wrong.
You can use either card almost anywhere, even when traveling. Plus, some cards offer rewards like cashback or discounts. You can add both to your phone for contactless payments and easily keep track of what you’ve spent. But even though they seem similar, the way they operate is different.
Credit Card vs. Debit Card
| Credit Card | Debit Card |
| Borrow money from your credit provider | Pulls money directly from your bank account |
| You’re given a spending limit by the bank | You can only spend what’s in your account |
| There are charges like interest and fees | There are no to little fees and charges |
| Helps build credit | Helps avoid debt accumulation |
| Obtaining a credit card involves a more detailed approval process based on your financial history | Getting a debit card is straightforward and doesn’t involve a credit check |
When should you use your debit card?
After opening an online account in India, you usually receive a debit card as part of the welcome kit. You can start using it for various payments once you activate it. Here’s when and why you might want to use your debit card:
- Everyday expenses: Use your debit card for routine spending like groceries, fuel, or dining out. It’s a safe and convenient alternative to carrying cash.
- Budgeting: Since a debit card pulls money directly from your bank account, it’s great for managing a budget. You can only spend what’s in your account, preventing overspending.
- Making payments: For secure purchases, you can use your debit card to pay for things like bills, shopping, or travel bookings. You simply enter your card details and authenticate the transaction with an OTP (One-time Password).
- Withdrawal funds: You can use your debit card at ATMs to withdraw cash from your account, offering flexibility when you need physical money.
When should you use your credit card?
To apply for a credit card, you have to make an application separately. Its approval depends on factors like your income, credit score, and employment status. You can use your credit card in the following situations:
- Large purchases: Credit cards are perfect for big-ticket items because they offer an interest-free period, letting you spread out payments. This helps manage your cash flow without tapping into your savings.
- Emergencies: When unexpected expenses arise, like medical bills, a credit card gives you immediate funds to handle the situation. It acts as a financial safety net during times of crisis.
- Shopping online: Credit cards often provide better deals and rewards for online purchases. You also get additional security when shopping online compared to using a debit card.
- International travel: Credit cards are convenient for making purchases abroad without the need to carry foreign currency. They offer competitive exchange rates.
When is the right time to get a credit card?
The best time to apply for a credit card is when you are financially stable and are in a position to clear your credit card balance at the end of the month.
However, if your goal is to increase your credit score or you require more space for substantial purchases or unpredictable recesses, it may come in handy.
So long as you can manage your spending and do not go overboard, you stand to benefit from many privileges that are associated with the possession of a credit card, such as cashback or travel rewards. Just make sure you’re ready to handle the responsibility so that you don’t end up with debt.
Final note
When you’re getting your first credit card, it’s essential to use it carefully. Try not to spend more than 30-40% of your credit limit, and always make sure you’re paying your bills on time. You should ideally settle the full amount so you don’t get stuck with interest or late fees.
Also, keep an eye on your spending by checking your statements regularly so you can stay on budget and spot any unusual charges right away. Take advantage of the rewards, like cashback or points, but don’t let that tempt you into buying things you don’t need. It’s all about balance and making sure you’re staying in control of your spending.
