The use of plastic cards has spiked over the past years, especially as people find it more difficult to make ends meet. In the absence of the actual cash to pay for daily living expenses such as food and gas, people can use their credit cards for their purchases and then pay for them when they get their paycheck. Those who have enough cash but find it too much of a hassle to go to the bank from time to time to get money, debit cards provide a better option.
Cash as a mode of payment is definitely out of the picture. It is for the same cashless convenience that both credit cards and debit cards have gained popularity. While they essentially provide the same benefit, the manner in which you have to actually pay for your charges differ between these two payment cards. The application procedures as well as the screening guidelines would also have their similarities except for a bit of relaxation in terms of the credit score requirements for a debit card. Despite the rise in debit card usage, the use of credit cards for all sorts of financial transactions still remains to be the preferred option.
A debit card basically works like checks. They are, in fact, tied up with a checking account. When you make a purchase using it, the amount of your purchase is held on your checking account until the time when the merchant can send the documentation requirements needed to transfer such amount to their own account. You will have to enter your PIN number when you use your them as a mode of payment. Your bank would probably not have any extra charges for each transaction. But you might be charged with overdraft penalties when your balance is not enough to cover the amount of your purchases.
Credit cards, on the other hand, let you spend money you do not have through your credit line. The card issuer determines the amount of credit line to extend to you depending on your credit score and on your capacity to pay. You normally just need to sign off on the transaction slip to consummate the charging of your purchase on your card. At the end of the credit cycle, you will be billed for all charges on your account. You normally have to pay a certain amount in interest especially if you do not pay off the entire amount that is billed to you. Paying just a portion of the billed amount and paying off the rest in succeeding months is one of the attractions of using credit cards. This, however, could cause your balance to balloon in interest charges.
When debit cards seem to be a simpler option, what is the reason people prefer to use a credit card more than a debit card. The reason lies primarily in the availability of funds and in the credit score benefits of using a credit card. Even when you do not yet have the cash, you can have the rely on the credit line in your card and then simply budget to pay your charges off when your funds become available.
A warning, though, to try and pay off your charges as soon as they are billed so that you do not have to pay for high interest rates. Letting the credit card charges grow uncontrolled will get you in deep financial trouble and cause your credit score to drop. Conversely, showing that you can manage your credit card well will allow you to build a good credit history that could serve as your ticket to being eligible for a host of financial instruments some years down the road