The use of hard plastic cards in transactions has increased significantly over the years; this is because of the increasing cases of thefts and robbery associated with cash, and inconveniences caused by carrying large sums of money.
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The form of plastic cards available includes store cards, cash cards, debit cards and credit cards; all these cards are used in transactions, but they are different in the benefits to its users, and on other services that come with the use of each of them. This paper will explore the differences between credit card and debit card.
The user of a debit card makes transactions using funds in his or her bank account, while the user of a credit card makes transactions without funds in his or her account but pay for it later, usually after one month. Some debit cards allow an overdraft, and the overdraft is charged; however, the cardholder has limits on the account spending.
Therefore, it is difficult to overspend when using debit cards; this restricts the cardholder to budget for only what he or she has (Nieuwenhuyzen 89). On the other hand, when using credit cards there are no limits, and the cardholder can easily lose track on how he or she has been spending; this can lead to overspending.
Debit cards are offered by banks without a charge; this remains so as long as the cardholder adheres on the terms and conditions, which includes the bank minimum balance. The same does not apply to credit cards because some have annual charges, and in the case where the credit cardholder fails to pay for his or her full monthly balance, the bank offers a penalty to the cardholder, and an interest is charged on the balance (Whiteley 146).
This means that the credit cardholder can only escape this charges and interest by spending within his or her means. Apart from interest and penalties, there are other hidden charges, which include card replacement fees and balance transfer fees; this makes credit cards more expensive to maintain than debit cards.
Debit cards have received competition from credit cards in terms of the fee charged for the cards; however, this has been countered by the increase of the debit card rewarding programs. Some of the programs help the cardholder to save small funds from time to time; this means that as the owner of the card spends every day his or her savings account gets better every day as well (Nieuwenhuyzen 153).
However, the debit rewarding programs are not more valuable than those offered by credit card companies and banks. Companies offering credit cards make more profit when compared to those offering debit cards, and this contributes to the high-valuable rewards received by credit cardholders.
Credit card rewards include bonus airline miles, they also offer cash back on the cardholder purchases; a card holder only needs to use his or her credit card and pay the balance in full to earn more of these rewards (Gitman, Joehnk & Billingsley 118). The rewards can build up quickly, and within no time, the credit cardholder can be smiling with cash backs or free flights, and all these are at zero cost.
Debit cards and credit cards are famous for protecting their users against theft; this is because users need not to carry money when making purchases. However, according to those who have used debit cards, debit cards offer more security when they are compared to credit cards.
When the cardholder inputs the PIN, the card helps the retailer to verify the purchase; this ensure that only the cardholder uses it for purchases, and not thieves or any other fraudulent persons (Whiteley 284). Another security advantage of debit cards is the ability to trace the expenditure made using the card; in case of theft or lose of a debit card the bank can trace the card using the history of expenditure, and this might also help in the criminal investigations.
Debit cards also limit the amount of funds available to the user, this means that the card’s liability caused by theft or robbery is limited; however, the cardholder can still be a victim of theft of the amount available on the debit card (Nieuwenhuyzen 193).
On the other hand is ensured zero loss of his or her funds; the credit card owner is guaranteed a refund of whole lost amount of money in case of theft or frauds. Moreover, there are in-built protection programs in credit cards, which protect the card owner from theft and frauds; this extra protection measures are not included in debit cards.
Other benefits on security on credit cards is that in case of a misunderstanding between the cardholder and the buyer, the credit card holder dispute the matter with the credit card company; these benefits are not enjoyed by debit card holders (Whiteley 302).
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Error might occur on the debit card or credit card, and in such instances, the credit card company gives the cardholder time to dispute the matter before he or she pays for the used funds, but in the case on a debit card, the company immediately deducts the disputed amount from the bank account even before the dispute is settled (Gitman, Joehnk & Billingsley 237).
However, the security of using credit cards can be compromised when receipts are printed with the full account number of the credit cardholder. Copies of the receipts are kept in business premises, and any access to the receipts by the employees of the business could open ones account to identity theft; such risks are not associated with the use of debit cards.
Credit cards are important when it comes to loans; frequent use of credit cards earns the cardholder a score, and this can help him or her to get best rates offered on large loan purchases, and this helps the cardholder to cut down on the amount of money payable for the purchase. This is not the case when it comes to debit cards; they do not give credit score to their cardholders because they act as a form of payment using cash.
Credit card also have extra benefits to its customers, on top of the warranties given to purchased items by the manufacturer, credit card companies have extended additional warranties. Credit cardholders enjoy these benefits on items that break after the manufacturer’s warranty has expired; these benefits do not come to those who purchase items with warranties using debit cards (Gitman, Joehnk & Billingsley 273).
Carrying credit cards and debit cards are safer than carrying cash, however, having a credit card come with limitations; there are some stores and restaurants that accept only cash, while some accept only debit cards to reduce on their costs. Also, credit cards, unlike debit cards, are not the best for cash withdrawal from ATM, and those who use them pay high advance interest rates.
It is true that debit cards and credit cards are different in terms of benefits and the way services are offered, therefore, it is up to an individual to evaluate his or her needs, and choose which one is more convenient to him or her.
Gitman, Lawrence, Joehnk Michael & Billingsley Randall. Personal Financial Planning. New York: Cengage Learning, 2010. Print.
Nieuwenhuyzen, Van. Randwi$e: The soldier’s guide to personal financial management. Stellenbosch: African Sun Media, 2006. Print.
Whiteley, John. Managing your money. Humberside, UK: First and Best in Education, 2007. Print.