The Difference Between a Debit and Credit Card
The Difference Between a Debit and Credit Card

Debit and credit cards might look alike, but these cards work differently. When it comes to using a debit card, the amount is automatically debited or subtracted from your bank account. On the other hand, using a credit card means you borrow funds to purchase things and then pay later.

What Is A Debit Card?

You can use a debit card as an alternative to cash in paying for the things you purchase. It's vital to know that there are two major types of cards that are typically referred to as debit cards.

First is the bank debit card, which is the one you get when you open your debit account. Second are the prepaid cards, which are not strictly debit cards and might not work the same way.

Bank Debit Cards

If you want to get a debit card, you should know that most banks and credit unions can get you one. This card will be linked to your account and can be used to buy the things you want. If you purchase a certain item and use the card as payment, the amount will automatically be deducted from your account.

Prepaid Cards

Prepaid cards are sometimes referred to as debit cards. However, this type of card isn't linked to your bank account and works differently from debit cards. What you do with a prepaid card is load some cash into it and use the money for your purchases.

When the balance of your prepaid card gets low, you can choose to add more money to it and continue using it. If you plan to get this card, you can buy it online or in some physical stores or online. Another thing you should know is that prepaid cards don't have the same protection as the usual debit card. Hence, it's best to take caution.

Pros and Cons of Debit Cards

Below are some of the pros and cons of having a debit card:

Pros

  • A debit card can let you set alerts that inform you of your debit card activity.

  • Using a debit card means you don't have to pay any interest on your purchases.

  • A debit card can allow you to withdraw money from ATMs.

Cons

  • There might be fees when you use a debit card. Common costs include overdraft fees and out-of-network ATM fees. If you have a prepaid card, expect to pay a fee for activating it, checking the balance, or withdrawing money from it.

  • A debit card doesn't have any impact on boosting your credit history.

  • Prepaid cards are only sometimes referred to as debit cards. But, they aren't really debit cards. They don't have the same protection debit cards offer. Hence, beware when using one.

What Is a Credit Card?

If you get a credit card, you'll be receiving a line of credit that lets you borrow cash so that you can make purchases. Several credit cards can also offer you balance transfers and cash advances.

It's important to know that when you use a credit card, you agree to pay back the credit card company the debt you owe, including the interest charges you might have.

Pros and Cons of Credit Cards

Below are some of the pros and cons of having a credit card:

Pros

  • The Fair Credit Billing Act protects you from any unfair credit billing practices. All credit cards are required to adhere to this Act.

  • Using your credit card helps boost your credit score.

  • Credit cards tend to offer rewards.

  • You can use your credit card for emergencies, even if you don't have any cash on hand.

Cons

  • If you take too much advantage, you might end up in a lot of credit card debt.

  • Not paying your balance on time and in full will lead you to pay more due to the charged interests.

  • You might be charged with fees when using a credit card. This includes late fees, balance transfer, return payment, and cash advance.

Choosing The Best Card For You

Now that you know the debit and credit card differences, it's time to learn which card is best for you. The first thing you should do is be honest with yourself and assess how you handle credit. If you have some spending issues, it's recommended to use a debit card. This is to prevent yourself from getting trapped into credit card debt.

Sometimes, determining which card to use might also depend on the purchase you're going to make. Several hotels and car rental agencies make using a debit card challenging or at least inconvenient. They usually require you to present your pay stubs, utility bills, or other evidence of ability to pay before they accept your booking. You might find using a credit card to be more convenient.

Using your credit card might also be best if you want to receive credit card reward programs. However, this only works if you fully pay the balance every month.

Also, it's necessary to note that if you're trying to boost your credit score, it's recommended to use a credit card occasionally.

To Wrap It Up

Both debit and credit cards can help you make purchases. However, these cards work differently. The best type of card you should use will depend on how you handle your financial situation.