Credit and debit cards are essentially identical in appearance, with 16-digit card numbers, magnetic strips, EMV chips, and expiry dates. Most likely, you carry a debit card and, at minimum, one credit card inside your wallet. With one significant exception among the others, both may make it simple and straightforward to make purchases offline or online. With the use of debit cards, you may make purchases using money that has been deposited in a bank. With credit cards, you may borrow money up to a predetermined limit in order to make purchases or cash withdrawals.
Although they provide unmatched convenience and protection, debit and credit cards have significant distinctions that might have a significant impact on your wallet. And worry not; you are not alone. People often confuse credit cards with similar terms, not understanding the distinctions. You can visit FinImpact to learn more about the differences between the line of credit vs. credit card and other financial terms. As for today, we’ll focus on the differences between credit and debit cards. So, let’s dive right into it!
What Is A Credit Card?
You can borrow a certain amount of money up to your credit limit, sometimes referred to as the credit line of the card. Simple purchases made with the card appear on your statement; the card issuer pays the merchant, and you pay the card issuer once you receive your bill.
Interest will be added to your purchases if you carry a balance from month to month. And you should be aware that credit cards have higher interest rates than other loans. Furthermore, the credit card account and payment history may have an effect on your credit score.
Pros of Credit Card
Here are the advantages of using a credit card.
- You may avoid carrying cash by using credit cards, which is quite practical.
- You may increase your credit score with credit cards.
- Compared to benefits offered by debit cards, your rewards are substantially higher.
- Considering that they have relatively high credit limits, they provide you discretion over how much you spend.
Cons of Credit Card
Here are the disadvantages of using a credit card.
- You will assess a higher interest rate if you don’t pay your payments on schedule or in full.
- Multiple charges apply to credit cards.
- Missing a payment will negatively impact your credit score.
- Even if you have a credit limit, you can still feel pressure to spend more than you have (leading to debt)
What Is A Debit Card?
Though they function differently, debit cards provide some of the same conveniences as credit cards. When you use a debit card to make a transaction, money is taken right out of your checking account. They accomplish this by putting a hold on the purchase’s total amount. The transaction is then submitted to the bank by the merchant, who then receives a credit to their account. This can take a few days, and the hold can disappear before the transaction is completed.
Pros of Debit Card
Here are the advantages of using a debit card.
- A debit card can assist you in controlling your spending because you often need to have funds in your bank account in order to use the card to make purchases.
- Alerts may be set up to track debit card activity.
- No interest will be charged on your purchases.
- Your debit card can be used to make cash withdrawals from ATMs or to obtain cash back when you make purchases at a point of sale.
Cons of Debit Card
Here are the disadvantages of using a debit card.
- Since money is deducted immediately from your account, there is no way for you to leave extra money there.
- If you don’t keep track of your expenditures, it may be difficult to balance your passbook at the end of each month.
- If you use an ATM from a different bank to make a withdrawal, you can be assessed a fee.
- When it comes to preventing debit card fraud, there is practically little protection.
The Bottom Line: Which Type Of Card Is Best For You?
The perfect credit card for you will depend on your spending patterns and intended use.
A debit card is definitely a better option if you believe using a credit card may entice you to overspend. A credit card, however, can be a suitable choice if you’re used to following a budget, are certain that you can pay off your amount in full and on time each month, and wish to earn incentives and establish credit.
You can also prefer using a debit card for regular transactions while keeping a credit card in your wallet for unexpected expenses.
The type of card you utilize in a particular circumstance should ultimately depend on the amount of cash you have on hand and how you like to handle your money. However, regardless of the kind of card you select, it’s critical to comprehend how it functions, what your financial duty is, and any potential penalties.