Debit and credit cards are plastic financial service cards that may look similar but differ in functionality. For those who are confused what’s the difference between these two cards, here’s an overview:

What are debit cards?

Debit cards, also known as ATM cards, are payment cards where the card user draws money directly from their bank account. If a person has 5000 INR in their account, they can’t draw any more money than 5000 INR. Debit cards are usually issued when a person opens a bank account. They then receive their card in a few days following opening bank account.

What are credit cards?

Credit cards are payment cards where users don’t draw money from their bank account. Rather, they borrow the amount from the bank, and the account statement of the amount owed by the account owner is issued to the bank account owner periodically. Credit card holders can draw money up to their line of credit. For example, if a person has 5000 INR in their bank account with a line of credit of 10000 INR, they can draw the as large amount as they want below 10000 INR without affecting the 5000 INR balance on their account. Usually, at the end of the month, the account holder will have to pay back the amount they owe to the bank.

So, when should you use a credit card?

• When you’re getting rewards on your purchase: Most of the time, products have discounts or rewards on them that a buyer can redeem if they make the payment through a credit card of an authorized bank. Accumulating reward points, discounts, cashback, or other rewards can help the account owner save a lot of money on their purchase.

• When you want to strengthen your credit score: Credit scores are three-digit numbers that measure how good you are at returning the money you owe on time. Since no borrowing is involved with debit cards, debit cards don’t contribute to your credit score in any way. On the other hand, credit cards are a gateway to receive short-term small loans. A high credit score can assist you in qualifying for a bigger loan with a lower interest rate if the need arises. Considering the current economic climate, everyone needs to have a strong credit score, as the need for a loan may appear at any time. Paying the credit amount you owe to the bank on time can help you strengthen your credit score. Additionally, it would be best to keep your credit utilization ratio of 0.3 to establish a good credit reputation.

• When you want to automate fixed expenses: If you’re a master budgeter who never fails to pay their bills on time, credit cards are your friend. Some payment software allows you to link your credit card to make fixed periodic payments such as rent, maintenance, etc. Using a credit card can assist you in meeting payment deadlines and avoiding late fees. The amount you owe will be later billed to you, which you can pay off at the end of the repayment term.

When should you not use a credit card?

1. When you’re sure your budgeting skills are low: credit cards come with a responsibility to which the card owner is entitled as soon as they start using their card. The due amount has to be paid back, and it’s best if paid back on time. If you follow a busy lifestyle where it’s difficult to keep track of your expenses, and you’re susceptible to overspending, it’s better to use a debit card instead. Alternatively, you can get an expense tracker app.
2. When you’re unsure about your card’s policies: Credit cards come with merchant fees, and you’re also supposed to pay the interest on the borrowed amount. Before proceeding with payment through a credit card, ensure you know all the additional charges billed to you.

Credit and debit cards have revolutionized the payment routine of millions of people worldwide. The activity of both cards can be tracked through a money management app. Both cards can be used to make payments online; sometimes, a buyer can earn rewards even through a debit card. However, ‌both cards bring great responsibility and ‘swipe charges’ that a buyer must stay aware of.