With the look and feel of both cards being very similar, it can be confusing to differentiate between a credit and a debit card. Both types of cards make purchases in stores or online super convenient and easy. And both cards offer you convenience and eliminate the need to carry large amounts of cash.
The major difference between the two types of cards, however, is that in a debit card, you spend money directly from the funds in your bank account. On the other hand, the money you spend via credit cards is borrowed from the card issuer and you will need to repay the borrowed amount by a specific due date. There are limits to the amount that you can spend with your credit card. This limit can be raised over time, especially if you have a good credit history.
What else should you know about credit card vs debit card? Here’s a look.
No Debt in Debit Cards
In comparison with a credit card, a debit card pays using the funds in your bank account, which means that you don’t actually go into any kind of debt. This payment method also ensures that you stay within your budget while spending. However, you could be charged an overdraft or return fee in case you spend more than your bank account allows.
Credit Cards for Credit History
Each time a payment is made using a credit card and then the balance is paid off on time, your credit history starts to build up. When you take a loan for any purpose, the first thing checked is your credit history. Paying off your credit card bill on time each month will have a positive impact on your credit score. It will tell any bank you want to take a loan from that you have a good history of paying off debt.
Avoiding Bills Later
With a debit card, since the amount is deducted directly from your bank account, you can stay worry-free that there won’t be a surprise at the end of the month in the form of a bill. This also means you do not need to worry about accumulating interest on the bill. Debit cards also help you control your spending and make you more cautious about overdraft and return fees.
Emergency Convenience
In case of an emergency, using a credit card might be much more useful. If you need to repair your house, you can put that charge on your credit card, since it might be an unplanned expense. Your credit card issuer might even give you some grace time to pay the bill. This also gives you a little bit of extra time to pay for things you were not expecting to pay for.
It might be a good idea to hold both types of cards in your wallet as a precaution. This is because the uses of a debit and credit card differ. Choose a card that offers you cashback and other rewards and matches your expected regular expenses.
