Both debit cards and credit cards offer easy payment methods without cash or check, and both are accepted in almost all the same places. But that’s where the similarities end.
The main difference is where the money comes from, and what its value can be.
Debit cards typically withdraw funds from a checking account, while credit cards receive purchases using a line of credit. With a debit card, you are spending money from your funds. Use a credit card and you are borrowing money and eventually it will have to be returned to the card issuer, perhaps including interest.
Debit Card Benefits
The biggest advantage of using a debit card to make a purchase is that you are not accumulating debt and interest. So if you want to be (or become) debt free, a debit card is probably the way to go.
Using a debit card can also help relieve you of the interest burden that can come from using a credit card. As long as you are not paying the balance every month, all the charges you receive are interest. And it can cost you a lot more.
Debit Card Drawbacks
The biggest drawback to debit cards is the ability to spend more than you can on your account, which can lead to overdraft fees. It can quickly become expensive. So it is important that you keep an eye on your available funds and do not spend what you do not have.
Credit Card Benefits
Many credit cards offer rewards when they are used, such as points that can be deposited in the store for discounts or travel benefits. You can use this type of plastic practically everywhere, including abroad.
Credit cards can also provide financial backup in the event of an emergency such as an unexpected job loss, hospitalization or car repair. Some customers use them to pay bills, then pay the balance every month. This can increase your reward points, and using your credit card responsibly can also help increase your credit score. A better score can help you qualify for lower interest rates on long-term loans, including mortgages or other loans and new credit card accounts.
Credit Card Drawbacks
One of the biggest drawbacks of spending with a credit card is that if you don’t pay it every month, there is interest on the balance paid. If you let the unpaid amount grow, higher interest rates can pull you deeper and deeper into debt.
Credit cards also make it easier for you to spend money and get away with it. If you’re not careful, it’s easy to fall into knee-deep debt, start making payments and damage your credit rating. This can make it difficult to make money in the future.
If you fail to pay, you may be charged a late fee, and in the meantime, interest on the unpaid balance may increase exponentially. In addition, any payments can damage your credit.