Credit and Debit Cards: What’s the Difference?
Credit and debit cards are both plastic cards and an overall safer tool than using paper money, since they reduce the risk of theft, and can be reclaimed if lost.
What is the difference between a debit card and a credit card?
The key difference is mentioned in the names of the cards.
A debit card allows you to make payments by using funds that are available in your current account. Any amount that you pay with a debit card is directly and instantly deducted from your personal account. So of course no interest fees will be charged.
It’s good to know that you can withdraw money using your debit card without any extra charges if the ATM belongs to your bank’s network.
On the other hand, a credit card also allows you to make payments but it will be like borrowing money from the bank and you will eventually have to pay it back. It can also be referred to as a short-term loan with a maximum amount set by the bank, depending on your eligibility.
You might be wondering now, how does the credit card cycle work?
Well it is easy, if you pay the full amount spent before the end of the billing cycle, you will not be charged with interest fees.
A minimum payment is monthly due regardless of the settlement method chosen and as long as there is a used balance on the card. The minimum payment is usually set and agreed upon with your bank (5%, 10%, 20% and 50% … of the total spent amount). Once the duration of the billing cycle is elapsed, the bank charges you with an interest fee on the remaining balance.
Always keep in mind to pay at least the minimum due amount on time or else the bank will charge you with an additional fee called “late payment”.
Last but not least, try to avoid as much as possible to withdraw money from any ATM using your credit card. You will be charged with an extra fee, called “cash transaction fee”, which typically range from 1% to 5% of the transaction amount and additional interest.