Advantages of Using A Credit Card Over A Debit Card
A debit card could be the best option for you if you have issues with financial responsibility and controlling your spending and debt levels. However, while a debit card is a more responsible version of a credit card, it does not replace a credit card completely. For example, following are five things which a credit card can do which a debit card can’t.
Even the most basic credit cards are likely to have a rewards program and even though most credit cards also have an annual fee, you can ensure your rewards outweigh the costs of using your credit card if you spend around $2,000 a month on your card which is not hard when you charge groceries and other bills and expenses. You can also often choose the rewards you want and you can choose a credit card which builds airline rewards points, gives you cashback when you spend, allows you to choose from a range of merchandise or rewards you with gift vouchers for your favourite stores.
Builds Your Credit History
While many financial experts will tell you that there is really no such thing as a good credit history, successfully applying for a credit card and using it responsibly can go a certain distance towards showing that you have the ability to manage a credit card, make your repayments on time and stay below the limit.
Emergency Cash Flow
Unlike a debit card which accesses your own funds, when there are not enough funds available in an emergency, a credit card can step up and help you manage your cash flow. Using your credit card in an emergency requires that you are able to determine what qualifies as an emergency so that you do not find yourself making emergency shoe purchases or taking emergency holidays and instead use your credit available to cover true emergencies like your car breaking down or an unexpected doctor’s bill.
Security of Not Losing Your Own Money
While you may do everything right in protecting your credit card details and identity when you use your card, you may lose your wallet or be fooled by a skimming scam and have your credit card information used fraudulently. Unlike a debit card, when your credit card is used fraudulently you are not losing your own money, you are instead having the fraudster run up a credit card debt which you can explain to your credit card provider when you report your card missing or stolen or you notice the fraudulent transactions, and your own funds and savings are not affected.
Most credit cards will offer you an interest-free period of around 55 days. This means that you can make purchases on your card and not be charged interest for up to 55 days if you have paid the balance to zero during the previous interest-free period. While you use your credit card provider’s money to do your groceries and pay your bills, your wages can stay safely in a high interest savings account, or in the offset account of your home loan, to earn you or save you interest. Then you simply take the amount you need before the end of the interest-free period and repay your purchases, keeping the interest earned or saved in your savings or offset account for yourself.
While a credit card can get you into a lot of trouble if you don’t know how to use it properly and don’t have the discipline to pay your balance to zero each month, there are many important features a credit card has which can be an advantage over using a debit card. If you want to enjoy the advantages of a credit card without being tempted to rely on it, you can supplement the advantages with a debit card which in most cases can be linked free to your existing transaction account.
This is a guest post from Alban. Alban is a personal finance writer. He helps people to compare and choose the best credit cards online.
Photo credit: SolanD
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