Thanks to modern technology, consumers today have several choices of making payments when making purchases. Now that people are accustomed to using Automatic Teller Machine(ATM) cards and punching in their personal identification numbers, the use of debit cards is on the rise. As with ATM cards, money from the user’s account is’debited’ immediately when a debit card is used for purchases.
To put it in simple terms, a Debit card is like an ATM card. Whereas an ATM card can only be used for withdrawing cash, Debit cards can be used for withdrawing cash from an ATM machine as well as at the time of making payments for purchases. The Debit card is very much similar to an ATM/Credit card in appearance and like the other two, it also has a magnetic strip on its rear side where the details of the customer’s bank account, account balance, etc are maintained.
The easiest way to differentiate between a credit and debit card is by keeping in mind that while a credit card is a way to’pay later, ’ a debit card is a way to’pay now.’
While Debit cards are a global phenomenon, they are relatively new in India but are estimated to grow at 80-90% per annum over the next 3-4 years. Debit cards are accepted at many locations including grocery stores, retail stores, petrol stations and hotels/restaurants and promises to make shopping a more pleasant experience as they offer a very good alternative to carrying a checkbook or cash.
The following are the basic differences between a Debit and Credit card:
A debit card is issued if a person has an existing bank account but a credit card requires evidence of creditworthiness determined through a credit check.
When a person uses his Debit card, he pays from his/her own bank account. When he/she uses a credit card, the funds are loaned or given on credit to him/her.
Debit cards act like cash and allow retailers to withdraw the amount of your purchase directly from your checking account. Credit cards, because they provide credit, allow you to buy an item now — even if you lack cash — with your promise to the credit-card issuer that you will pay later. For those who want top avoid a debt trap, Debit cards are advisable as they prevent people from going deep into debt because people tend to use debit cards only when they know they can afford a particular item and not otherwise.
But debit cards also have a downside. If you don’t keep track of your purchases, you’ll find out too late that your bank account has been overdrawn and that can cost penalty fees. With credit cards, one can avoid overdrawing his/her bank account. If you limit your purchases to an amount that can be paid off in a month, credit cards provide lots of cheap convenience.
Then again, credit cards tend to make people think less about what they can afford and results in them buying more impulsively now assuming that the same can be paid back later in installments. That’s how people get into big trouble, in most cases after big festival purchases. People put too much on their card and spend the next four to six months, or more, paying it off, along with a hefty interest. Carrying too much debt can be dangerous as there is a possibility of unforeseen problems arising during the year which could lead to a financial crisis.
The decision of whether to pay by credit or debit card falls somewhere between safety and the desire to remain debt-free. It is generally recommended to use debit cards for cash-and-carry types of purchases, such as gas, groceries and hardware supplies because the risk of liability is much less. Credit cards are recommended for large purchases or for making hotel/airline bookings, etc. in an emergency.
Finally, please bear in mind the following points to ensure responsible use of your debit/credit cards:
If the card is lost or stolen, report it immediately to your bank/financial institution.
If you suspect that the card is being fraudulently used, report it immediately to your bank/financial institution.
Hold on to your periodic debit/credit statements from the respective service providers. A thief may get your name and debit card number from a receipt and order goods by mail or over the telephone. Your card does not have to be missing in order for it to be misused.
If you have a PIN number, memorize it. Do not keep your PIN number with your card. Also, don’t choose a PIN number that a smart thief could figure out, such as your phone number or birthday.
Never give your PIN number to anyone. Keep it private.
Always know how much money you have available in your account. Don’t forget that your debit card may allow you to access money that you have set aside to cover a check which has not cleared your bank yet.
Keep your receipts in one place for easy retrieval and better oversight of your bank account.
I have not consciously touched upon the other aspects like the usage of these cards on the internet…that’s a different topic by itself, will try to cover it sometime in the future.