Credit cards and debit cards are increasing in popularity every year. Most of us possess atleast one credit card and one debit card. Many new users wonder whether to use credit card or debit card for their transactions. While they are similar in many ways , there are subtle differences which will determine what is ideal in each case.
As of July 2017, there are 3.1 Cr credit cards and 79 Cr Debit cards in circulation in India. But it when it comes to usage, the amount transacted on these cards at POS (Point of sale) machines at stores is 35500 Crs on Credit cards vs 37500 Crs on Debit cards. This indicates that credit cards are used almost as widely as debit cards for purchases. And there are some good reasons for people to use credit cards.
- Access to instant credit : A credit card gives you access to additional cash whenever you need. It can be very useful to have access to this credit in emergencies.
- Convert purchases into EMIs : You can make a big purchase and pay in EMIs without the hassles of credit (CIBIL) checks, applications and approvals.
- Building credit history : Credit card is usually the first credit product for a lot of consumers. It helps users start and build credit history. This helps when you apply for bigger loans like car loan or home loan. How Credit Cards can help you get a good credit score?
- Rewards : Credit cards offer lot of rewards to users. These range from free movie tickets, free airport lounge access, cashback on purchases, redeemable points etc. Debit cards are catching up here and offer rewards but credit cards still have a lot more variety than debit cards.
- Fees and Charges : Credit cards have a variety of fees and charges. the most important ones are Annual Maintenance fee (AMF) , Activation fee, Cash Advance Fee, Balance Transfer Fee, Late Payment Fee. These can easily add up to a significant amount over a year. You can read more about credit card fees here.
- Overspending : Credit cards can be dangerous if you are an impulsive buyer. Some users might end up buying more than they can afford as they have access to a credit card and then pay for it slowly. This results in huge interest payments and will prove expensive.
- Access to your bank account : Debit cards are very useful to withdraw cash from ATMs. They can do almost everything a credit card does. You can use them for making purchases, withdrawing cash from your bank account and earn rewards on purchases.
- Fewer fees : The number of fees are lower than credit cards. The only major fee is an annual maintenance fee. There could be additional fees for transactions from ATMs of other banks if you go beyond 5 transactions per month.
- Control on spend : You are constrained to spend within your means. You can only spend money already in your bank account so there is no danger of overspending.
- Rewards : Debit card rewards have improved considerably and will continue to do so but still have some ground to catch up with credit cards. Credit cards offer more variety and better rewards.
- No Credit access : You have access to only the money you have in your account. Credit cards give you access to incremental funds in an emergency and that could come in very useful.
What should you use? Credit Card or Debit Card?
So whether you want to use a credit card or not, it is a good idea to have at least one credit card in your wallet. It helps build credit history and could be useful in an unforeseen cash crunch situation. We all will use one primary card for most of our purchases and what is ideal, credit card or debit card, depends on the individual.
If you are disciplined with your money and pay off your bills every month on time, you should use credit card as your primary card for purchases. You will get free access to credit for upto 30 days and also get to earn rewards.
If you are an impulsive buyer or someone who doesn’t care about the rewards, then you should use debit card as your primary card. Some of us are just not comfortable using credit and would prefer the old school way of spending only from what we have. They just need a debit card for everything they want to do. But even in this case applying and getting a credit card would help with building credit history. How can your credit card help you get a good CIBIL score?