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Tuesday, 24 April 2018

What’s the difference between debit and credit cards?




Paying with plastic is quick and convenient. But is it better to use debit cards or credit cards? What are the differences? And is there anything you need to be aware of?

The fundamental difference

Debit cards are linked to your current account: anything you spend comes out of here. But when you use a credit card, you’re borrowing money from your card provider, which you’ll need to pay back.
Debit cards: the benefits
Easily available: Most current accounts issue you with a debit card to help manage your day-to-day banking - there are over 100 million in circulation in the UK.
Budget and debt management: Because you’re spending your own money, debit cards can help you manage your household budget by giving you full visibility over how much you’ve spent and how much you have left to play with. They also tend to be fee-free so, unless you dip into a planned or unplanned overdraft facility, you can avoid getting into debt.
Cash withdrawals: It’s free to withdraw cash from most ATMs and most UK banks and building societies won’t charge you for using their machines, even if you don’t bank with them. Those that do will give you the option to cancel the transaction.

Debit cards are ideal if you like to know exactly where you stand financially.
Debit cards: things to consider
Lack of emergency funds: Although great for budgeting and day-to-day money management, they don’t allow a lot of leeway for unexpected expenses.
No credit score: using debit cards won’t improve your credit rating, which could be a disadvantage – for example, when trying to secure a mortgage.
Credit cards: the benefits
Instant credit: This is one of the most popular ways to borrow money, providing an instant line of credit for everyday or unexpected purchases – and especially useful for emergencies.
Additional protection: If you’ve used your credit card to buy something worth between £100 and £30,000 and it doesn’t arrive or isn’t fit for purpose, you’re entitled to claim the full amount back under Section 75 of the Consumer Credit Act 1974. You’re even covered if the retailer goes bust – giving you total peace of mind for purchases in this price bracket.
Be rewarded for spending. With ‘reward’ credit cards, you build up points to redeem in specific stores or use as air miles: a great option if you would be using these services anyway.
Interest-free repayments: Interest-free periods on a new card let you spend now and pay later without running up charges – ideal if you need to buy something urgently and can settle the balance over time. 0% balance transfer offers give you the opportunity to pay off an existing balance without accruing any more interest.
Bonus perks: Cashback credit cards give you money back when you spend. Some cards also offer perks such as travel or gadget insurance.
Improve your credit score: A credit card is an ideal way to build up your credit history. However, if you let repayments slide this will have the opposite effect, so be sure to keep on top of them.

Credit cards are ideal for everyday spending and one-off purchases, as long as you can commit to paying off the full balance and won’t run into debt. If you’re considering a rewards card, make sure you choose one offering benefits you will use, otherwise it could be a false economy.
Credit cards: things to consider
Managing your debt: credit cards in the UK owe around £70 billion in total - approximately £2,500 per household. If you have one, it’s important to manage your repayments. If you don’t pay off your balance in full, you’ll be charged interest. And if you don’t meet the minimum repayments you’ll be charged late payment fees on top. This can soon spiral out of control.
Additional fees and charges: You’ll be charged if you withdraw cash from an ATM.
Security

Both credit and debit cards offer greater financial security than paying by cash. Plus, with online banking, you can keep an eye on your spending and notify the bank if you suspect fraudulent activity – and they’ll help you recoup your losses if necessary.

Both debit and credit card offer a variety of benefits. Debit cards can help you stick to your budget. Credit cards can provide perks for day-to-day spending, additional protection on purchases and peace of mind in an emergency. If deciding between the two, it’s important to consider your spending habits and personal financial situation. However, as each offers different benefits, you might be best served by a mixture of both.

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