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When are Credit Cards More Useful than Debit Cards?

20th February 2012

Both credit cards and debit cards are issued generally by banks. Both also can be used directly to complete a payment transaction. However, if debit cards are used, the amount of money collected for payment is immediately deducted from the card holders bank account balance. Moreover, before the debit card can be used, the card holder must have sufficient funds in their account. On the other hand, a credit card has a credit limit set by the issuing bank. And each time the credit card holder uses the card to make transactions, a loan is made. And because it is a loan, interest is typically levied, known as annual percentage rate. With this information, one can likely surmise that credit cards are not beneficial. Before one jumps to a conclusion, it is best to have a thorough understanding of how each of these cards work.

How Debit Cards Work

Debit cards are directly linked to bank accounts. Thus, any successful financial transactions made are immediately deducted from the overall balance of the said bank accounts. Besides using for payments, they also allow ATM cash withdrawals. Sometimes, these cards are also effective in getting cash backs from certain shops during a transaction, for example, upon paying for merchandises during shopping. However, not all cashiers and stores allow this kind of cash back service. There are also times when debit cards are used to back a pending cheque; to guarantee that the said cheque will be honored by the bank.

Advantages Of Debit Cards

Debit card holders are less likely to get into serious debt problems as the transactions are instantly deducted from cash balances of bank accounts. So the card holder can't spend more money than they already have.


Nonetheless, if there are not enough funds in the bank account, it can pose a huge problem especially if there is only one bank account linked. The consequences are either the card holder pays in cash or the transaction is aborted. The exception is for debit cards that are Visa, Switch, or Delta. These cards are sometimes not checked for availability of cash balance before the payment is made. Thus, the transaction can still push through.

How Do Credit Cards Work

Credits cards work in a "buy now pay later" scheme. The issuing banks provide the loan in a form of credit limit, which is used to make payments. Credit cards vary in features, types, and APR. In addition, the credit score of an individual may play deciding role in what credit cards are available to them.

Advantages Of Credit Cards

Foremost, a credit card does not require a bank account. Nor does it require linking it to a bank account. Depending on the features of a credit card, the following are some of the best advantages of credit cards:

  • Cash Advances. Unlike the cash advances in debit cards, the cash advances in credit cards are not deductible from any bank savings of cardholders. They are charged to the bank issuing the credit card.
  • Emergency Uses. You may experience times where you do not have enough money to pay for important purchases. A credit card can be a huge advantage because the card holder is able to make transactions such as ATM withdrawals or purchasing necessities by borrowing funds from the card issuer. This is especially convenient in an emergency situation.
  • Security. Credit cards are protected from theft and fraud. Likewise, they save consumers from bringing large amount of money when shopping. When there are unfavorable incidences such as robbery or misplaced valuables like bags, it is beneficial to carry credit cards instead of huge amount of cash.
  • Rewards. Banks that issue the debit cards do not offer any attractive offers to their card holders. Banks issuing credit cards, meanwhile, have an abundance of offers as incentives to their credit card holders. These rewards can be:
    1. Cash back. Credit card holders earn cash back from accumulated points each time a pound is charged against the credit card.
    2. Air Miles. Instead of cash backs, credit card holders may earn miles convertible to free airline tickets.
    3. Gas Miles. Some credit cards are exclusive to a certain fuel Company while others are valid to all fuel companies. Regardless, all credit card holders earn incentives in the form of free fuel for their cars.
    4. Freebies. Giveaways from banks issuing the cards include gift certificates, free hotel or resort accommodation, signature items, to name a few.

There are many more benefits that await the credit card users if the above are not convincing enough. A credit card can greatly help shape your credit history when used properly.