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What is the Difference Between A Debit Card and Credit Card?

May 25, 2022

Debit cards and credit cards are one of the most popular ways to pay these days. Even though debit cards and credit cards may seem like the same thing, they’re actually quite different. Both are plastic cards that you use as a form of payment, but there are several key differences between the two. 

What is a Debit Card? 

A debit card is a plastic card that draws money directly from your checking account. Whenever you pay for something with your debit card, whether you swipe the card, insert the chip, or use Apple, Android or Samsung Pay, your card transmits your banking information to the merchant where you’re making a purchase. With that information, the merchant is able to receive the funds from your checking account.  

Your debit card is linked to your checking account, so any time you make a purchase, the funds are pulled from your account. There is no interest charged on the purchases you make, but you’ll want to make sure that you have enough money in your account to cover any purchases so your account doesn’t go negative or incur fees. 

What is a Credit Card? 

A credit card is a plastic card that allows you to borrow money against a line of credit. This means that you’re borrowing money from the financial institution that issued you the credit card. Whatever money you spend on the credit card must be paid back, usually within 30 days, or you’ll be charged interest. To avoid paying interest, pay off your credit card balance every month. If you plan to carry a balance, be sure to shop for a low interest rate credit card that will minimize the cost of borrowing.  

Debit Card vs. Credit Card 

There are a few advantages to using either a debit or credit card in certain situations. 

Your debit card is your best choice if you’re on a budget. When you use your debit card, you can only spend what you have in your account. If you’re watching what you spend, using a debit card will help keep you from overspending, having to pay interest and racking up debt. 

A credit card is a good option if you’re in a financial emergency. Instead of depleting your savings account when you have an unexpected expense, like a home or car repair, use your credit card to cover the cost. Remember, you’ll still have to pay back the expense, so make sure you stay on top of your payments. 

Many credit cards come with rewards programs that offer points for merchandise, cash back or travel rewards. Using your credit card responsibly and earning these rewards is a nice perk. 

While debit cards and credit cards can be used in the same places and are more convenient than cash or checks, knowing the difference between the two is important. With the information above, you’ll be able to decide which form of payment is best for your financial situation.