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Debit and credit cards may look similar, but work in very different ways. For credit cards, you have a credit balance that you eat into every time you make a transaction. Every month your lender will write you a letter telling you your new balance and asking you to make a payment, which is somewhere between the minimum payment and the full amount.
A debit card is very simple. You have a bank account and every purchase is debited from that account. When the account becomes zero, the card does not work.
Hence a disclaimer – stop reading now and instead go for a debit card if you can’t handle credit. If the thought of being able to spend thousands of dollars or pounds of someone else’s money fills you with glee then the dangers may outweigh the benefits. You may get into debt, so avoid taking a credit card.
But if you can handle credit, then a credit card can bring you many benefits. If you think you can but can’t count on yourself, talk to your lender and request a lower limit. Once you reach that spending limit, the card stops working.
So, what are the benefits?
Prize
If, like me, you pay your balance off on time each month, you don’t need to look for a low-rate card. Instead, you can look at rewards cards. Now they may only give you 1% or 0.5% back on everything you spend, but getting something back is a bonus if you’re not charging anything.
easy to travel
Credit cards can make traveling a lot easier. Look around carefully and you’ll be able to find some that offer commission-free currency exchange when you’re using your card abroad. Buy something in a foreign currency and it is converted at a favorable exchange rate at no charge. It’s safer than a lot of cash and can work out cheaper.
Hotels & Car Rentals
Many hotels and car rental companies will want to swipe your card when you arrive. This is so that they can charge your card if you leave without paying the bill. This works on a debit card, but they only have a set amount authorized when they swipe your card. On debit cards, the money is locked in your account until they issue it.
Security
Maximizing savings is the main reason for credit cards over debit cards. It’s more secure. Consumer credit protection gives you protection on credit cards that you don’t see on debit cards. If your card is lost or stolen, or the details on a website are misused, you have far more protection with a credit card. Similarly, if you buy something and the firm fails to deliver, it is a credit, not a debit, card that gives you extra protection and a chance to get your money back.
However, as I’ve already said if you can’t handle that amount of credit, forget it!
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