The most frequent and popular mode of payment over a period of a long time has been ‘Cash’. However, from the 90s best credit cards came into the market and started competing with cash and they were later joined by debit card as well. Credit and Debit card gained popularity with the name of ‘Plastic Money’.
Using cash is simple and easy for all, but not all people are still familiar with the functionality of credit and debit card.
Debit Card: It is similar to cash, logically there isn’t much difference between the two. In both cases you transfer money to the seller, the only difference is that cash is physical money while debit transfers the money electronically to the seller’s bank account.
Credit Card: Credit card is kind of an instant loan. Through credit card, the payment is actually done by the issuing bank to the seller on behalf of the cardholder. In turn, you being the cardholder have to pay back the amount to bank as it gets generated on the credit card bill on a monthly basis.
So it’s kind of a short term loan and interest is charged when the complete balance of the previous month’s purchase is not paid off.
Considering the above basics of credit and debit card you can easily understand that in both cases the timing of cash outflow is different and also there is a possibility of paying interest as well. Thus, there are situations where credit card should be used and some situations where the debit card should be used.
Instances were using a Credit Card is beneficial are:
1. Low Balance in Bank Account: Obviously if you are running low on your bank balance then depending on a credit card is the only option you are left with. However, make sure you are using the card for essentials only. In addition, you also need to see that you make the complete payment in next month otherwise you would also be required to carry the burden of interest on your purchases.
2. When you are certain of paying bills before time: Each credit card has a certain interest free period of 30-50 days. So, if you are sure that you will pay off before due date then you can use a credit card.
3. For improving credit score: The importance of credit score is increasing day by day. It has already become a parameter for deciding the rate of interest on the loan. You can use your credit card to improve your score by making sensible use of the card and paying off the balance each month. A high credit score is certainly an advantage for your future loan applications.
4. For earning rewards and discounts: Each credit card has a certain reward system and discounts available. You can use the credit card to earn those discounts and rewards. But here, you need to make sure that you do not overspend it should be within your regular spending habits. Use only to the extent which you can repay completely next month.
The use of the card should be based on what will give you the most benefit. Not all situations are perfect for credit card and similarly, not all situations are perfect for debit card.