Debit Card vs Credit Card

Are you one of those who want to apply for a card but do not know whether you will go for a debit or a credit card? When shall you use debit card and credit card? In this post, I will give you their major differences and some of their advantages and disadvantages.

Functions

Let's start first with the debit card. Debit card is also known as prepaid card as you load it first before you can use it. BPI E-Prepaid is an example of a debit card. Before you can make purchases from the stores, you have to deposit first sufficient cash for the amount that you are planning to purchase. Some ATM cards can now function as debit cards. Whenever you want to buy clothes from department stores, you can present your ATM card and the store will debit the amount you have just purchased.

On the other hand, credit card allows you to make purchases without depositing or loading first. You can present your cards anytime without worrying whether it has sufficient balance or none. However, most credit cards have credit limit. This credit limit is identified in accordance to your financial capacity. Credit limit is a helpful tool to remind those who have credit cards that they are already spending lavishly.

Security

When it comes to security, credit card is more secure than debit card. When you lost your debit card, anyone can use the remaining load in it. Most debit cards do not need PIN when making purchases. 

In credit card, you need to present your identification card and your booklet provided by your bank/institution. You will have to sign therefrom and agree for the price that you have made. You cannot make your purchases without validating your identification and without recognizing the purchases you have made.

Advantages of Debit Card

1. You can easily make purchases.

2. Most debit cards do not incur processing fees.

3. Debit cards are safe from fraudulent charges.

Disadvantages of Debit Card

1. Your purchases is limited only up to the amount that you have prepaid.

2. It is less secure than a credit card.

Advantages of Credit Card

1. Credit card is more versatile than a debit card.

2. It is more secure than a debit card.

Disadvantages of Credit Card

1. Cumbersome process of making purchases.

2. It incurs processing fee and interest charges.

3. It is more prone to fraudulent charges

You have said awhile ago that credit card is more secure than a debit card? Then why is it more prone to fraudulent charges?

Take subscriptions as an example. When you subscribe to a website, they will get your credit card information and incur the subscription price for the first period. In this case, it is secured as it will verify your identities such as your name, last name, address, expiry of the card, card number, etc. If these items do not match, you will get declined. This is, in a way, secured.

However, most subscriptions will auto-credit. Meaning to say they incur you automatically without your permission once your subscription expires. Websites are legally allowed to since they had your credit card information before. So to avoid this auto-credit or auto-subscribe scheme, clarify it to the company before subscribing or the best way is to use debit cards since they can only incur amounts equal or less than to its load balance.

When debit card is best 

1. Debit card is best when you have poor personal financial management and you do not have self-restraint. Credit cards are indeed a powerful tool but just like super powers, they can harm somebody if not used properly. Debit card does not incur overdraft fees, interest fees and other charges unlike credit cards.

2. If the vendor demands for an immediate payment. Debit cards are the fastest options since debit cards transactions are handled instantaneously.

When credit card is best

1. Credit cards are best when you are making large purchases.

2. Credit cards are also preferable when traveling or in a vacation. As I said before, credit cards are more secured than debit cards so in case of loss, you do not have to worry for misusing the card.

Trivia

In accounting, cash's normal balance is debit and liability's normal balance is credit. That is why these cards are named as debit cards and credit cards. In a debit card, you purchase through your cash in a card while in credit card, you purchase through incurring a liability.