What should I use credit or debit card for bill payments

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Credit Vs Debit card for bill payments

Debit cards draw money from your bank account. Credit cards allow you to borrow money that must be repaid. Credit cards offer several advantages, including the chance to build credit and improved security measures.

If you own a Debit Card as well as a Credit Card, you must often face the dilemma of when to use a Credit Card or Debit Card.

How do Debit Cards Work?

Your debit card is basically a plastic check. When you use it to make a purchase, it takes the money directly out of your bank account. So, if you try to spend Rs. 5000 but only have Rs. 3000 in your account, the bank will decline your transaction.

Because the money comes out of your account as soon as you swipe, you won’t get a bill and you won’t pay interest. You might, however, face overdraft fees if you try to spend more money than is in your account. Debit cards also work as ATM cards. You can use them to take cash directly out of your bank account.

How do Credit Cards Work?

Your credit card, unlike a debit card, is like a loan. When you open a credit card, you’re approved for a certain line of credit.Also known as a credit limit; a line of credit is how much you can spend before your card is “maxed out.” Once you reach this threshold, you can no longer use your card for purchases at least not until you make a payment and it posts to your account.

Each month, you’ll get a bill from your card issuer. This bill will include the amount you spent during the current billing cycle (minus any credits), any other charges on the account, and any leftover balance from the previous month. Though you’re only required to cover the minimum payment (and not the whole balance), you’ll typically pay interest on whatever amount remains.

Because credit card interest rates are usually very high, it’s highly recommended to pay your bill in full each month to avoid interest fees completely.

The advantages of paying bills with a credit card or debit card

There are many reasons you may want to pay your monthly bills with a credit or debit card when possible. Here are just a few of the advantages of paying with plastic:

  • Automate monthly payments. Setting up automatic payments for monthly bills through a credit card or debit card will help ensure payments are always on time.
  • Build credit with a consistent monthly payment. Using a credit card for a monthly bill is a great way to amp up a credit score without running the risk of overspending. Just be sure to pay the bill in full and on time every time.
  • Earn rewards for money that needs to be spent anyway. Using a credit card that offers rewards for a bill that needs to be paid anyway will help to pile on those rewards points without overspending. Many debit and/or credit card issuers, [including Education First FCU’s [debit/credit] card], also offer attractive rewards for using the card to pay for specific expenses, including some monthly bills.
  • Enjoy consumer protection. Paying with plastic offers the consumer the advantages of purchase protection, zero or minimal liability in case of fraud, guaranteed returns and more.
  • Pay your bills quickly without the hassle of writing out checks and using snail mail. With a credit or debit card, paying a bill only takes a few clicks or phone prompts.
  • Budget easily. Paying with a credit or debit card makes for easy tracking of monthly spending.
  • Payments post promptly. Bill payments made via credit or debit card will generally post within one or two business days. Contrast that with a check that needs to be mailed out, delivered to the correct party and then deposited and cleared until the payment is finally processed.

The disadvantages of paying bills with credit or debit cards

Here’s the flip side of paying bills with plastic:

  • There may be fees for paying the bill with a credit card. Pay close attention to the payment options on every bill; some service providers charge a processing fee for paying with a debit or credit card.
  • It can make a difficult financial situation worse. For consumers who are already carrying a sizable amount of debt, it may not be the best idea to charge a monthly bill to a credit card. Similarly, it isn’t responsible to set up an automatic monthly payment through a debit card that is linked to an account that may not have enough money to cover the charge each month.
  • Credit utilization may cross the threshold to an undesirable rate. One of the key components of an excellent credit score is a low credit utilization rate. For consumers with a minimal amount of available credit, charging too many bills to a credit card can cause their score to plunge.
  • Interest may accrue. Consumers who cannot pay their entire credit card bill each month would be saddled with more accrued interest than they can afford if they choose to pay their monthly bills with a credit card.

Which of my bills can I pay with a credit or debit card?

While each of them has its own merits and demerits, here are some situations clarifying when to use a Credit Card or Debit Card:

Making immediate payments

  • If you immediately need to transfer funds to someone, using your Debit Card is the best option. When it comes to Debit Cards, the processing time of a transaction is minimal, which will ensure that the recipient receives the payment instantly.

Getting foreign currency

  • When you need foreign exchange, both Debit and Credit Cards can be used to withdraw foreign cash from international ATMs. However, you should note that both Debit Cards and Credit Cards attract transactional fees, with Credit Cards fees being higher than Debit Cards.

Paying utility bills

  • While paying utility bills the dilemma on when to use credit card becomes difficult as you get CashBacks and Reward Points when you use either cards to make utility bill payments However, you should remember that when you use a Debit Card to pay, the funds are debited from the existing amount in the account linked. On the other hand, when you use a  Credit Card, you will be borrowing funds to pay bills. Such borrowed funds need to be repaid diligently on the due date. In this scenario, it is better to understand the benefit gained from each card specifically before deciding when to use a Credit Card or Debit Card.

Shopping online

  • If you think you will need anti-fraud protection while transacting online, both, a Credit Card and a Debit Card offers protection, through the zero liability features. You can also take advantage of special offers during special shopping events on your Debit or Credit Card. However, at the point of sale, your funds will get debited from your account through your Debit Card. Whereas when you use Credit Cards, you will be borrowing funds from the bank. After a specific duration, if you haven’t paid your Credit Card bill, you will be charged interest on the billable amount. If you aren’t disciplined when it comes to paying your Credit Card bills, it is recommended you use your Debit Card while shopping online.

Making a large purchase

  • One of the compelling argument in favour of when to use Credit Cards includes making large purchases. That’s because there’s a higher expenditure limit on Credit Cards as compared to Debit Cards. However, you should also be able to repay the borrowed funds through the Credit Card. In the case of Debit Cards, the funds are debited from the funds in your linked account. If you have insufficient funds, you may not be able to make the required purchase.

Dining out

  • Both cards offer benefits when it comes to dining out. You can look up the dining offers for the respective card before using it, as they have tie-ups with different merchants. You can also take advantage of the CashBack and Reward Point offers.

Booking a car or hotel room

  • Booking cars or hotel rooms often allow transactions using only a Credit Card in some instances in which case these scenarios aptly fall in the list of situations when to use your Credit Card. Even if paying with your Debit Card is an option, it is advisable to use your Credit Card because you always have the opportunity to dispute the charges if you detect any fraud.

Building credit

  • Using your Credit Card wisely and paying off the balance every month helps you build a good credit history. In case you require a loan for a car or a house in the future, you can get it quickly if you have a good credit record.

Purchasing flight tickets

  • You can use either your Debit or Credit Card to purchase flight tickets. You can even collect Reward Points, miles, and also take advantage of lounge access offered on your card. However, since there is a considerable difference between the price of your tickets for domestic travel and international travel, you should consider whether the Debit Card or Credit Card is more appropriate for that particular flight.