When you are at the store and need to pay for something you have bought, you look into your wallet and choose between cash, a credit card and a debit card. Sometimes you pay cash. Sometimes you use your credit card. And there are times you use your debit card. Have you ever wondered why? At the beginning of the month, when your pockets are full, maybe the debit card is the card of your choice. And as you head to the end of the month, maybe your credit card becomes your preferred mode of payment.

Let’s take a good look at both these cards and understand the difference between a Credit Card and a Debit Card to know which one to use, and when.

Debit Cards use the money from your account to make a payment. So when you buy something and use your debit card to pay for it, the amount is debited from your account instantly. If you don’t have enough money in your account to pay for this purchase, the transaction won’t go through. You can use debit cards at the ATM to withdraw cash as well – which again comes out of the money in your account.

Your Credit Card, on the other hand, lets you pay for something now by charging it to your account – without your having to pay for it at that minute. All your purchases add up and you get a bill once a month. It is almost like a little advance that you are given – you don’t need to pay for your purchases immediately. You can choose to pay the entire amount in one shot, or pay at least the minimum amount due and carry forward the rest to the next billing cycle. You will be charged an interest when you don’t pay your bills in full.

When you get a credit card, the issuing company gives you a line of credit and you can spend as much as you want, as long as you don’t exceed the limit that was fixed for you. Your credit limit was fixed by the bank based on your credit history, your income and your credit worthiness. And when you use your credit card wisely and well, you actually build yourself a good credit rating. And the better your rating and your credit history, the easier it is for you to get a loan or mortgage approved!

Apart from building a great credit rating -

Each time you charge a purchase on to your credit card, you earn something – depending on the card that you have, you could earn Rewards Points, cash back, air miles, etc. So the more you use the card, the more it gives back to you. Which is why it is very important to find the right credit card that suits your lifestyle.

And if, for some reason, there is some fraudulent activity on your credit card, you can report it and block the card to prevent further misuse.

On the other hand, a Debit Card makes sure that you don’t extravagantly spend any money that you do not have. It helps you stick to a budget and not let you live beyond your means. Maxing out your credit card and then not paying the whole amount, but carrying it forward, will end up making you pay a lot of money as interest.

So at the end of the day, now that we have seen the difference between debit and credit cards, it all boils down to this - if you can manage your credit responsibly and pay all your credit card bills in full each time, then a credit card is great for you. But if that is a problem, it is wiser to stick to a debit card.

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