Credit card or Debit card as the payment method - Which one to use and when?
Last published/edited on 2025-04-23
With the growth of UPI and digital payment methods in India, cashless transactions have gained much prominence in the last 7-8 years. Credit card or Debit card as the payment method is one of the most used payment methods after UPI. Hence, we should be aware of which payment best suits us and which mode of payment, among debit card or credit card, we should use as a payment method.
When should we use a credit card as a payment method?
The foremost thing to remember is that our money should work for us even when we sleep, as we have explained in this article. Banks pay interest to us on the amount we put in our accounts. This can be around 2.75% - 7.50% per annum based on the amount we have in the account. Higher amount = Higher interest rate.
So let's say, we did a family shopping and purchased 50,000 worth of items. Let’s compare what is the advantages we gained by paying it with a credit card. Your bank account has 3 Lakhs with sweep-in FD mode activated on your account. This bank account might receive around 5.5% to 6% rate of interest. The time for the credit card bill to generate and the due date is around 45 days. So by paying for your purchase with the credit card, you have earned interest-free time for the credit card payment.
Interest ≈ ₹50,000 × 6% × 45/365
≈ ₹370 to ₹400
In these 45 days, your bank account has produced 400 rupees at a 6% rate of interest. This amount can be much higher if you have more in your savings account. We can also earn reward and cashacks by using credit cards and using credit cards and paying bill before due date will build stron credit score which is very important for future bank loans. All this at free of cost!
Having said that, credit card payments are not always the best option, especially in the following cases - Spending more than you have in your savings account. Remember that credit card payments are liable to interest accumulation at as high as 45%. So purchase only what you can afford. If the purchase is more than 30% of your total credit limit, it would be best to split it among the multiple credit cards so that the max spend on any card would not be greater than 30% of your credit limit.
When should we use a debit card as a payment option?
- When you are on a strict budget. Financial boundaries for category spending are a prudent option.
- For ATM withdrawals and day-to-day expenses.
- When transacting at places where credit cards are not accepted.
Also don't forget that most of the credit cards and debit cards come with personal accident cover or death cover which can be claimed only if the card was previously used before 2 or 3 months of the mishap as per the specific bank's guidelines. Hence we should use our cards often. Use your cards wisely! Use credit cards for planned purchases, to maximise interest on bank balances, and earn rewards, but only if you can pay in full. Use debit cards for simplicity in managing finances and budget control.
