Debit cards seem attractive to many a people who are against/afraid of credit. This may be because of many reasons:
- People don’t like the exorbitant interest rates charged for credit cards
- Some people plain do not apply for the additional credit card, when the bank accounts provide them with a card
- Some are afraid of overrunning their spending capacity
- Others are against credit as a concept for personal, religious reasons
We will address only the first three categories in this article.
- First, do not confuse the usefulness of debit cards. They are a great resource to be cashless in more than few situations. If you want to carry money across the country, it is easier and safer to carry debit card than real money (just a ATM card will work, but nowadays banks issue mostly debit cards). It is also useful if you were not able to get credit card for whatever the reason, there are establishments that may charge you for credit card but accept debit cards without issues. Yes, debit cards provide advantage in all that and more. But credit cards are better for any kind of spending in (online/offline) stores that do not charge for credit card, or in other words, do not provide discounts for cash transactions. Let’s see why:
- Credit cards offer you more rewards (almost always). Depending on your spend patterns, you tend to earn points that accumulate to get rewards (Payback, bank-specific rewards etc.)
- Credit cards can offer you up to 55 days interest free money. Even if you do not invest in big bang assets that delivery big money in that time, consider interest on the money in your bank account for those 55 days
- Credit cards tend to be safer
- You don’t need to enter PIN each time and be subject to scrutiny while doing so. This is especially true in petrol pumps and other such establishments where you have to part the card and risk sharing of name, debit card information as known by the bank
- Although credit cards and debit cards have their own insurance to protect you from card misuse, debit cards link to **your** bank account. Any misuse not disputed on time or not accepted by the bank will result in you loosing the money for ever. In case of credit cards you have the option to fight tooth and nail for the unauthorized transactions and not loosing money physically until at a later time when the bank does not recognize your claim. There is an option of not paying up at all, but that is borderline illegal and you risk your credit score.
- You can setup virtual credit cards, that can be used for safer online transactions
- You could also setup additional credit cards with specific spend limits to have a virtual control on what exactly you can spend and where
But, of course, you need to take precautions:
- For debit or credit cards, have the bank send you SMS/email for every transaction. If your bank does not support that, switch banks (this does not protect you when you and your phone are outside the country, are not reachable or are asleep)
- Make sure you pay credit card bills on time. **Never** have debts against credit card unless it is with 0% EMI schemes (which by themselves are shady, but not quite). Always try to pay the full due amount on time, the penalties tend to be hefty.
- Either link credit card to auto-debit through a bank or through third parties like Bill Desk. Payment through presentment will enable one more layer and allow you to check the final credit card bill before the money is deducted from your bank account
What do you use, and what do you think about the two ways of using plastic money?