If you’re like most American adults, you probably have a couple of cards in your wallet. In fact, three out of four have one credit card at least.
However, you’re unsure about these pieces of plastic. What’s the difference? Do you get different perks with one and not the other?
The financial part of things is confusing to most. However, we’re here to set your mind at ease.
If you’re tired of wondering the outcome of the credit card vs debit card debate, look no further. Keep reading to find out everything you need to know about these two cards.
What Is a Credit Card?
To start, let’s go over what a credit card is. Put simply, this card comes equipped with a credit limit.
Think of credit limit as to how much you can borrow. Every time you use a credit card to make a purchase, you’re essentially borrowing money from that company.
How much you borrowed will need to be returned. To do that, you can either set up monthly payments or pay it in full.
You’re also charged interest when you don’t pay the balance in full. If you decide to go with monthly payments, interest will be charged based on the unpaid amount.
How much interest your card yields depend on the bank. Each one has a different amount so it’s best to look over your credit card statement to know.
Every time you make (or miss) a payment, it affects your credit score. Your credit score is a number based on a scale.
That scale ranges from poor to excellent and indicates how likely you are to repay debt. It’s used in times when you want to take out a mortgage or buy a new car.
A poor score means you’ll be paying higher interest and a larger monthly payment. An excellent score, on the other hand, means you’ll be paying less on both.
What Is a Debit Card?
Debit cards are just like credit cards but in the sense you aren’t borrowing the money from a third-party. Essentially, you’re getting the money from your bank account.
It’s tied to your checking account. Meaning, if you run out of money, you can’t complete your purchase. Or, depending on the features of your account, you’ll be overdrawn.
To be overdrawn means you’ll have to pay back that money. For example, let’s say your checking account reads -$100.
Next time money is deposited into your bank account, $100 will be deducted from the amount. If that’s the only money you received, then your account will be at 0.
One thing to keep in mind with a debit card is that there is often a hold. This hold means the money is being transferred to the merchant’s account. Unlike a credit card (where it’s instant), it may take a couple of days to reflect on your account the money deducted.
Which One Is Right for You?
If you’re irresponsible with money, a credit card isn’t in your best interest. Maxing out your card and opening new ones will quickly get you into credit card debt.
That said, a debit card would be better suited as you’re discouraged from going over your balance.
However, sometimes a credit card is necessary in cases of renting a car or hotel room. This is so the company can bill you for any damages that may occur.
Credit Card vs Debit Card Solved
Consider the debate of credit card vs debit card solved. Now that you know the difference, you can make the wise decision of which one is right for you.
Want more articles like this one? Check out the rest of our blog!
Here are some other articles you may find interesting:
10 Tips on How to Use a Credit Card to Your Advantage
9 Things You Should Know Before Taking Out Credit Card Insurance
Obtaining Unsecured Credit Cards with Bad Credit
What Are the Disadvantages of an Instant Credit Card?