Circa 2004, when i received my first credit card the most worried person was my father. I was fresh out of college in my first job. Moreover, during those days it was very easy to avail credit card. My father believed that it’s too early for me to use a credit card. Though back of the mind his key concern was that if i will spend more on credit card beyond repayment capacity then the bill will be on him :) . Though from day 1, i ensured credit card payment or usage within my means to avoid Debt Trap.
There was a study done by FMCG company on the shopping behavior of buyers. The same buyer was given Debit Card, Credit Card, and Cash on three different occasions. He ends up spending highest with credit card followed by debit card and cash. It concluded that card users especially credit card users are impulsive buyers compared to shopping through Cash or Debit Card.
My father never availed credit card throughout his life. His biggest concern is that you end up spending more. I do agree with him. At the time of credit card payment, the human psychology is that actual payment will be at later date. My father prefers debit card. The reason being, you only end up spending within your means and resources.
I had this debate with my father multiple times whether we should prefer credit card payment or debit card payment. I shared some of the real life examples and instances with my father to prove my point. Finally, he agreed to my point of view. I am sharing the same with you.
5 Reasons Why I Prefer Credit Card Payment over Debit Card
1. Chargeback on Credit Card Payment:
In my opinion, this is one of the best feature of a credit card payment but not known to most of the cardholders. In layman terms, chargeback is the dispute raised by cardholder against a particular credit card payment/transaction. It is reported to the bank. You can file chargeback up to 180 days from the date of the transaction. In other words, any sale/purchase is reversible during this period. The chargeback can be filed in case the cardholder is not happy with the product/service or non-receipt/cancellation/return of the same.
Two most important points in this regard
(a) Chargeback facility is provided by the card networks i.e. Visa and Mastercard, not by the banks
(b) Chargeback facility is not available for Debit Card Payments in India
In last 12 years, i filed chargeback only twice but this feature protects the interest of a cardholder. On both the occasions, after investigation bank reversed the credit card payment.
As chargeback cannot be filed for debit card transaction because once the money is debited from the savings account, the bank has little or no control over the transaction. This is one of the key reasons why i prefer credit card payment over a debit card.
2. Complaint Redressal:
Based on my personal experience, i can say that complaints related to credit card payment are attended faster compared to a debit card. One of the reasons is bank’s fear that customer might default on payment in case of dispute. Whereas in the case of a debit card, if the money is withdrawn from your account then the onus is on the cardholder to prove innocence or run around.
To prove the fact, I would like to share that most of the banks don’t have a dedicated help desk for debit card complaints. On the other hand, every bank has a separate team to handle complaints related to credit card payment or any other issue. Complaints related to the debit card are tagged under savings account or current account only.
3. Banks incentivize you to spend on Credit Card but not on Debit Card:
Off late banks started reward programs for using debit cards but credit card ecosystem is more evolved and beneficial for banks. I shared in the post, How Credit Companies Make Money or Earn Profit?. On the other hand, debit card payment is a direct debit from a savings account. Therefore banks don’t have any reason why they should encourage debit card usage. On a lighter note, if banks promote debit card usage it implies reducing their own cash deposits/reserves.
Because of this reason, you will find almost all the offers like EMI, cashback, rewards program, freebies etc on a credit card. The promo offers on debit cards are a handful and just for the sake of running the same.
4. Credit Card usage help to build CIBIL Score:
I shared this point in detail in my various posts like How Credit Card limit help to improve CIBIL Score? Recently, i read a news that some of the corporate houses are checking CIBIL Score of a potential employee before hiring. Similar to Aadhaar card, the good credit score will be one of the important parameters in future. A potential groom or bride may reject you based on credit score. Though i am married but prefer credit card payment to maintain a good credit score.
5. Emergency Situations:
Last but not the least. In my opinion, credit card comes handy during emergency situations. Normally, an individual is fully invested and funds in hand is equivalent to 2-3 months household expenses. Let me take my example, the most liquid investments in my portfolio are stocks or Gold ETF. If i sell today before 3:30 PM then i will receive the funds on the 3rd day. The same is the case with mutual funds. Here i am only referring to working days.
A few years back i was in an emergency situation and was in an urgent need of funds. I knew that i can arrange within 3-4 days but if the requirement is urgent & immediate then credit card comes to your rescue. My requirement was more than cash in hand. I made credit card payment without disturbing my contingency funds in a savings account. I knew i had approx 1 months time to arrange the funds to clear credit card bill. Therefore, credit card payment rescued me from an emergency situation.
Words of Wisdom:
Through this post, i am not saying that you should spend beyond your means. I am trying to highlight some of the points that go in favor of credit card compared to a debit card. It is important to follow the credit discipline. That is only possible if you make credit card payment considering it as debit card payment :) . At the same time, take advantage of benefits offered by the credit card.
Copyright © Nitin Bhatia. All Rights Reserved.
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