Credit Card Debt vs Overdraft Fees: The Costs and Consequences to Know
Knowing the various kinds of fees as well as charges that can have an effect on your budget is very vital for you when it comes to managing finances. This is the money one owes the bank if they do not pay their credit card balance in full. In addition, overdraft fees happen when a person spends more than he/she has in his/her checking account. Withdrawing too much money from your checking account can result in overdraft fees. This is why people need to know about the difference between credit and debit cards. This guide looks at what it will cost you and the consequences attached to it.
Credit Card Vs Debit Card
There are several variations between credit card and debit card which one must understand before signing up. These include;
Definition: A form of payment that gives its user a pre-approved loan or line of credit which they can use at any given time is commonly referred to as a credit card while a debit card involves transferring funds directly from a consumer’s bank account into another.
Spending Limit: Credit cards provide higher spending limits unlike their debit counterparts where you are limited by whichever amount exists in your bank account balance while making purchases.
Interest Rates: Failing to pay off outstanding balances within due dates might attract interest rates being charged on payments made using credit cards.The best Indian credit cards should have low interest rates.However,this does not apply with regards to using debit cards for all transactions.
Rewards/Cashback: Using credit cards earns users rewards and cashback unlike when using debit cards, which lacks such features.
Credit History: The establishment of good reputation aiding acquisition of huge credits later is only possible when someone uses a credit card;the opposite holds true about a debit card use.
Security Features On Credit Cards
Debit Cards Usually Offer less Secure Options
Cost And Consequences Related To Credit Card Debt
Cost: Consequences:
Interest charges
In case you have a credit card due payment, you will be charged interest on that balance. Credit card interest can be very high, thus it’s important to pay off balances in full every month to avoid debt and interest costs.
Damage to credit score
Non-payments or excessive debts on your credit cards can lower your credit score. Even with the best credit card in India, getting another line of credit may not be simple. This increases future loan rates.
Late fees
Failure to make timely payments towards your credit card could lead to late fees whose penalty grows quickly making it even harder paying off the balance.
Potential legal action
If you fail to pay your outstanding balance, companies offering credit cards may go to court or employ collection agents.
Annual fees
Some types of credit cards charge an annual fee which should also factor in as an additional cost.
Difficulties getting loans or credit
If credit card debt and late payments have been difficulties to one’s financial situation, then it will be hard for one to get a loan or credit in future.
Overdraft charges
In case you spend more than your credit limit on your credit card, you may be charged an over-limit fee. This cost can go as high as 2.50% of the total amount spent depending on the issuer of the card.
Phone calls from collection agents
Credit card companies and debt collectors may call or send letters to your home or workplace with a request for payment.
Cost And Consequences of Overdraft Fees
The Cost The Consequences
Interest costs
Charges may also apply if you maintain an overdraft balance on which interest is levied, thus increasing OD protection outlay.
Effect On Your Credit Score For Negative Reasons
When there are several instances where you overdraw your account without paying that brings in extra fees, this may result in negative impact on your credit score that makes access to loans difficult in future or lets you pay higher interest rates.
Overdraft Fee
Debit cards often attract overdraft fees when spending exceeds what is currently available in one’s checking account.
Closure of Account
If someone regularly spends beyond their means from their checking account by failing to repay any overdrafts or negative balances they could lose access to their accounts altogether.
Extended Overdraft Charges
You might be levied additional penalties besides an OD charge if your account has been continuously overdrawn for quite some time.
Additional charges other than those mentioned above usually made through electronic transfers include bouncing checks, maintenance fees among others which can increase overall financial burden.
Early Termination Charges
Early closure fees are normally charged if one decides to withdraw his/her money before maturity date from his/her fixed deposits accounts and possibly other investments.
Legal action or debt collection
Upon nonpayment of overdraft fees or negative balances a bank might result to legal suits and also use debt collectors for the purpose of recovering the debts owed.
Conclusion
To make sound financial decisions, it is necessary to know how credit card differs from a debit card. Understanding credit card debt consequences along with fees will help you choose best credit cards in India. However you should be aware of overdraft fees that are usually applied so as to select an appropriate debit card provider. A little bit of research and planning can go a long way in ensuring that you are making the right payment choice for your needs and budget.
