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Credit Cards vs Debit Cards: What’s the Difference?

With the mass distribution of credit cards, we can hardly imagine modern life without them. They let us purchase everything we need even if it exceeds our budget, and repay later, when we have an opportunity for that. Debit cards, in turn, have given us unlimited access to bank accounts at any time of the day.

By the way, you can use both credit and debit cards to make purchases in online stores. However, it is still worth finding out which of them is more advantageous. A clear understanding of their key features will help you save and properly manage your money.

When is it better to use a credit card?

When you make purchases with a credit card, you borrow money from the credit card provider and repay the debt within the period determined by the bank. If you fail to pay on time, you may be charged interest, which you will also have to pay.

There are different types of credit cards:

  • Rewards credit cards let you earn points when you use the card;
  • Interest-free credit cards offer you a credit card grace period. During a certain time, the bank gives you opportunity to pay off the debt without any interest;
  • Balance transfer credit cards allow you to pay off a loan in a different bank;
  • Credit cards for building credit help you receive a good credit score.

What is a credit limit and how is it determined?

Credit cards have a certain limit, the maximum amount of money you can spend. If you exceed your credit limit, you may be required to pay additional fees. The limit is set by your lender based on your personal data including your credit history and some other factors:

  • Your monthly earnings;
  • Mortgages, loans, credit cards and other debts;
  • Your credit history shows if there were late payments in the past;
  • The required credit amount.

The main goal of the lender is to offer you an affordable sum that you can repay without any problems

Before you start using a credit card, you should check the credit limit. To do that, just examine the information that was provided to you when you got a credit card. In addition, if you use your lender’s mobile app, you can find all the relevant information about your status in your personal account.

It will also be useful to keep track of your credit card spending so that you do not happen to go over your limit.

What happens if you exceed the credit limit?

The credit limit can go up or down. It will all depend on how much the lender trusts you. A credit limit increase is approved for some users if they use their card for a long time: from six months or a year.

To increase your chances, you should follow some rules:

  • Do not miss payments. Even a one-day late payment is a good reason for lenders to refuse your credit limit increase;
  • Do not hurry. The longer you use the card and fulfill your obligations related to the credit repayment, the more trust the lender has in you;
  • Keep track of your spending and do not approach the limit;
  • Have patience. You should not request a credit limit increase too often as this can affect your credit score.

If you do plan to request a higher credit limit, we advise you to make sure that you can actually pay it off. Large loans pose risks since there is always a chance of borrowing too much and falling into a debt trap.

Types of credit card fees

You may be charged additional interest in the following cases:

  • Missed or late payments: Late credit payments are usually subject to some penalties. You will also be charged additional fees if you pay less than the minimum required.
  • You exceed the limit on your credit card.
  • A balance transfer fee: The lender often imposes additional fees on the transfer of an outstanding debt to another card.
  • A cash advance fee: The interest usually depends on the withdrawn amount, but there is also a fixed minimum fee.

Traveling with a credit card

You will most likely have to pay a fee for using a credit card while out of the country. However, the good news is this can be avoided if you learn how to properly manage your spending.

  • Repay as much as possible. It is best to pay off your debt in full every month.
  • Automate your payments. Direct transactions will help you avoid unnecessary charges and fees. Adjust your monthly payments according to your income level.
  • Change the due date. For example, if you are on a trip, it is best to schedule the payment around the date when you return home.
  • Limit your spending. First, check your credit limit. Make sure it is set at the level that is affordable to you and try not to get too close to it. Examine your credit card statements and use the mobile app to track your balance more efficiently.
  • Set up your app to get notifications.
  • Do not use your credit card to withdraw cash due to high fees. A debit card is better suited for this purpose.
  • Check your credit card expiration date. Any trip can go wrong and take more time than it was planned. Even if your card does not expire in the near future, it is worth taking another payment card with you as a plan B.
  • Update your contact details. This will allow your bank to contact you if necessary.

Keep in mind that some hotels, airlines and car rental companies may only accept credit cards for bookings. Whether you are on vacation or on a business trip, traveling with a credit card is a safe and convenient way to spend money abroad.

When is it better to use a debit card?

When you pay with a debit card, you only spend your own money. If there are not enough funds on your balance, the transaction will be rejected. By the way, the funds are transferred to the recipient’s account automatically, without any interest charged on the payment. A debit card is best suited for:

  • Cash withdrawal at an ATM: It is usually free of charge, or withdrawal fees are minimum. If you use a credit card to withdraw cash, you will definitely be charged for that.
  • Complete control over your finances: Credit cards provoke compulsive spending, which cannot be said about debit cards. They will help you avoid debt burden and stress.
  • Daily spending.

Moreover, there are most often no annual fees and charges for the use of debit cards. In addition, some banks offer cheap insurance for unforeseen situations. Cash withdrawals at your bank branches are generally not subject to fees. However, they may be charged if you use ATMs of other banks.

Furthermore, debit cards offer customers more favorable terms and conditions than credit cards. If you have access to your bank account, you can use your debit card as well. There are no limits, scores, or applications required.

You can use both credit and debit cards. The main thing is to do it wisely and carefully read their terms and conditions.

Posted on November 1, 2023