Why Are Credit Cards More Convenient Than Debit Cards?
Credit cards can be a fantastic tool to have and indeed very convenient. There are often plenty of advantages to using a credit card over your debit card such as rewards. You can use them for most things, transfer money like with a debit card, and even pay bail! However, although they might be convenient – they’re not always the best choice.
We’re going to look at the fantastic benefits of the credit card and what it has over a debit card, but also some of the downsides. So, let’s get our finances in check. Why are credit cards more convenient than debit cards?
Credit Cards And Debit Cards – What’s The Difference?
You’d be forgiven if you’ve never seen a credit card before, that by looking simply at the card – they can look identical (particularly if issued by the same bank).
Both seem to have 16 digits across the front of the card, both have expiration and start dates, both have a security code on the back and they both work in the store!
The main thing to know about the difference between credit and debit is that with a credit card, you are effectively borrowing money from the issuer, which you must pay back eventually.
If you use your credit card responsibly, you may decide to set up regular payments from your checking account each month.
This is a great way to manage your money and build your credit score – although, overusing your credit card or using too much of your approved credit limit can harm your credit rating, so be sure you’re sensible with using a credit card.
A debit card is either a prepaid card or your checking account card. Basically, the money you’re spending is your own.
Both the credit card and debit card have their own advantages and disadvantages, but in an ideal world – you can use both responsibly and manage your money wisely.
Types Of Credit Card
Your credit card will be issued to you, subject to approval from whoever you applied to. This could be your bank, a store or another kind of financial institution. The types of credit card you can expect to see include:
- Charge Card: Stores often supply these kinds of credit cards. You may find that they require payment in full each month, so be sure to check the terms and conditions when signing up to the credit agreement.
- Standard: Your typical credit card. An amount of credit is issued to you and will allow you to make purchases and pay off the balance at your own discretion.
- Secured: Secured credit, like a secured loan – is a method of credit that allows the issuer to ask for something as collateral, in case you (the debtor) default on the repayments. For secured credit cards, this is often in the form of a deposit payment.
- For large secured loans, this is often secured against your home – meaning if you fail to meet the payment requirements, your home could be taken off you.
- Premium: Premium credit cards usually have fantastic rewards or perks that you can use like lounge services at an airport. Some cards may offer insurance with your premium card (such as pet insurance). Unsurprisingly though, Premium cards normally have a higher annual fee or larger interest.
- Rewards: Speaking of rewards, a rewards credit card is offered specifically for that. They offer cash back incentives or travel rewards. It will differ from supplier to supplier.
- Balance Transfer: Balance transfer credit cards are a great way to manage your repayments.
If you manage to find a 0% balance transfer credit card, you can move your current balance from a credit card to a new one, as a way to avoid paying high interest fees every month and enjoy an interest free vacation for a number of months or years, depending on the offer.
Types Of Debit Cards
There aren’t as many kinds of debit card offered, but you can still find:
- Standard: A standard debit card is your everyday finances. Whatever you’ve earned may go into this account and whatever you pay out from this account is your money. Unless agreed with your bank, you are not borrowing any money or applying for a line of credit.
- Prepaid: A prepaid card is when you have put a specific amount of money onto a card – and once it’s gone, it’s gone (unless you top it up again!). This is normally for people travelling and do not want to take their cards, a way to teach children how to manage money or simply a method of managing a budget for yourself.
- Electronic Benefits Transfer: Normally issued by a federal agency to allow those that qualify access their services and benefits.
- Rewards: Similar to a rewards credit card, you may be able to receive rewards on your purchases if you pay a fee to the issuer of the card each month.
Credit Cards: The Good Side
Credit cards when used responsibly can have a huge amount of benefits. For those who have never had a line of credit before, credit cards can be one of the best ways to build a good credit score.
The best way to do this is to only charge a small, affordable amount to the credit card each month for things such as gas.
If your credit limit to begin with is around $250 (which is typical for first timers), by charging only $30 each month to the card and then paying in full at the end of the month – you will progressively build good credit.
Your credit card issuer will normally increase your line of credit every few months if you’re proving your sensible ability to manage credit.
Credit cards can often, as we have seen, provide numerous benefits by using them such as travel rewards. If you travel often for business for example, taking advantage of these benefits can help your everyday life, and may save you money each month.
By wisely taking advantage of a balance transfer card, you can keep up with regular payments and save yourself from plunging into astronomical debts with often outrageous interest rates.
You may also find that credit cards can offer fraud and consumer protection, often better than a debit card due to the Fair Credit Billing Act. You will need to contact your credit card company as soon as possible though.
Credit Cards: The Bad Side
If you struggle to manage your money or irresponsibly use your credit card, you may find yourself falling into debt very quickly – particularly if you’ve been provided with a huge credit limit.
Some credit card companies will change their interest rates which become unfavorable and the larger your debt – it will get worse.
This is when you need to be savvy when it comes to understanding things like balance transfer cards. The problem is, poor management of your credit card will harm your credit and the likelihood of being accepted for a second line of credit (with a balance transfer) is very low.
There may also be additional fees such as annual fees, cash advance fees or balance transfer fees. Be sure to check in your credit agreement what the rates are before agreeing to anything.
What To Remember
Credit cards and debit cards have their own merits. The thing to remember is that managing your credit and money correctly is the imperative and most important factor in your financial success.
Using your credit card with small purchases and then paying the balance in full each month from your debit account is the best way to get your credit up and the rates you’ll be offered if you ever wish to apply for more credit (car or mortgage) will be far more favorable.