Debit Vs Credit Card: What Are the Differences?

debit vs credit card

Debit and credit cards are payment vehicles used instead of cash when you purchase items. They’re essentially a modern take on checks and are important for online payments. 

Credit and debit cards provide the same benefits, though there are unique advantages to each. If you’re considering getting one or both, learning about them can help equip you for future use.

What Is a Debit Card?

The debit card connects your bank’s checking account to you wherever you go. It has a finite capability — or spending cap — determined by how much money you have in the account.


“I’ve always been pretty careful about keeping track of my spending, so using my debit card is often the easiest way of doing that” - Andy Murray


Every time you use the debit card, it automatically deducts the money from your account. The nice thing about a debit card is that if you don’t have money in the account, it rejects your payment. 

It’s the same as using cash — you can’t spend money if you don’t have money.

Overall, the debit card exists for convenience. Many of these also act as ATM cards, so you can withdraw cash when needed.


Types of Debit Cards

There are several debit cards, and people may have one or a combination. These are:

  • Standard debit cards: These are connected to your bank. Often, the bank is the one that issues the card, though there are exceptions.
  • Prepaid debit: The prepaid card can work for people without bank access. You’ll have to use cash to preload the card, and then it’s ready for transactions.
  • Electronic benefits transfer (EBT): Government agencies give out these cards. Those qualified get the cards and can use the benefits to make purchases.


The Advantages of a Debit Card

The advantage of a debit card is that it allows you to have your bank account ready for use at any time. It removes the need to go to the bank or an ATM to get cash to complete your purchase.

Nearly all physical and online retailers have the means to process payments using debit cards. Here are some other reasons why people use debit cards primarily:

  • The debit card provides a way to settle payments. It gets money from the bank account, and you won’t have to worry about additional charges. 
  • It gives you peace of mind as you know you won’t have an outstanding bill coming for you at the end of the month.
  • A debit card controls your spending by providing a limit to your purchases based on your bank account. Since you spend money on many things, you’ll have to consider each payment. 
  • You won’t have to use more than you already own because the card blocks any transactions that go over the amount in your account.
  • Debit cards prevent you from going into debt. You’re not borrowing money; just using the money that’s already in your account.
  • Debit cards are respected worldwide and online, so there’s no need to go through the hassle of converting money or accessing convoluted payment portals to transact.
    As long as the merchant supports the card, all you need to do is input your details.


The Disadvantages of a Debit Card

The most notable disadvantage of a debit card is that you don’t have an accessible line of credit to use if your account runs out. You are limited to your bank account balance. 

There are also some other considerations, including:

  • Using a debit card can also incur fees depending on the bank. For example, foreign ATMs or overdrafting can lead to charges.
  • No matter how much you use the debit card, it won’t affect or build your credit. If you want to build up a credit score, a debit card is not the way to do that.
  • Lenders want to know that you are a responsible borrower before letting you access better loans. You won’t have the opportunity to do that with a debit card alone.
  • Debit cards don’t come with rewards. No matter your loyalty, there won’t be anything earned for each use. 
  • These cards don’t come with cash backs or exclusive offers as the companies behind them don’t need to entice users.

What Is a Credit Card

The credit card, as the name implies, connects to a line of credit. When you apply for one, you agree with a company. 

They’ll provide you with a budget you can work within the card and a limit for what you can spend.

When you use the card, the company will pay the merchant on your behalf, and you’ll be billed for the payment each month. After you get the bill, you’ll see some fees and interest rates added for the convenience of having easily accessible money.


Since credit cards have connections globally, it’s easy to use them, and most merchants accept them for payment. It acts as a way to widen your financial capability beyond your bank account.


Some companies even give out incentives for the regular use of their card. For example, a company may offer cash back for every purchase of groceries or gas. 

Rewards can vary depending on the card company.

As you improve your credit score, you’ll open the door to cards with better rewards and higher limits. These come with better payment terms, like lower interest rates and features that may not be available with your previous cards.

In many societies, credit cards are the norm, and many people own them because of the convenience they bring to their finances.


Types of Credit Cards

There are many types of credit cards as companies are looking for ways to offer more than the standard fare. Here are some that you may encounter:

  1. Standard cards: These cards are what the name implies and mainly extend a line of credit to a user. They often don’t have extra features, so they don’t have additional annual fees attached.
  2. Secured cards: These cards are for those with a low or nonexistent credit score. They require that you use an initial cash deposit as collateral when applying for the card.
  3. Rewards cards: This type of card mainly focuses on providing specific benefits to its users. For example, it could be a card that primarily works to earn travel points or cash back.
  4. Premium cards: These cards are only available for high credit users, providing access to special services. However, these usually have higher annual fees than most.
  5. Balance transfer cards: People with balances on other credit cards may apply for these to transfer the debt. They do this to gain access to lower interest rates and better terms on their debt.
  6. Charge cards: These cards have higher or no spending limit at all. However, you need to pay the balance monthly to keep using them.


The Advantages of a Credit Card

The biggest reason to own a credit card is that it gives you more leeway to make purchases and extra time to fulfill payments. For example, if you need to make two purchases but only have the money for one, you can charge them to your credit card and pay later. 

You’ll receive a bill at the end of the cycle of how much you owe the company and can settle the payment there.

You’re only required to pay the minimum to fulfill the company’s requirements, but if you don’t pay the full balance, you’re taking on debt. Credit cards usually charge interest rates, which will compound quickly if you don’t settle the bill early. 

If you cannot pay the full amount, make sure you are paying more than the minimum to settle the debt.

Apart from the convenience of accessible money, there are other advantages to a credit card. These include:

  • Credit cards are a buffer for emergencies. You don’t necessarily need to use them all the time, but knowing that you have a backup for a rainy day can provide peace of mind. 
  • Using credit cards is a reliable way to build your credit history. We all know that building credit takes time, and these cards can be a consistent method.


The Disadvantages of a Credit Card

While credit cards provide convenience to their users, they can also be a source of trouble if you’re not careful. People forget that using it is still borrowing money and getting into debt. 

If you fail to make payments as you’re spending, it could spiral into problems for your finances. Credit cards are the primary source of personal debt for over 50% of individuals in the country.

Apart from that, there are also several reasons you have to consider before getting a credit card:

  • Since a credit card is a form of a loan, it has interest rates. Every time you use it, you’ll have to pay the item back with added fees. 
  • Through interest, companies earn money by letting you borrow money from them. 
  • Aside from interest, credit cards also have fees associated with them. For example, the annual fee is something you have to pay to maintain the card each year. 
  • There are more than just annual fees; other charges include late payments, balance transfers, cash advances, and more.
  • While a credit card can build your credit score up, it can do the opposite. Having one is a financial responsibility as you must make payments on time; late and missed payments will negatively affect your credit scores for months or even years. 
  • Late payments aren’t the only reason you could see a downward movement in your credit score. Maxing out your card often also indicates that you may not be a responsible buyer, and applying for multiple credit cards is also a red flag for lenders.


Debit vs credit card: Which one should i get?

When getting a card, many people try to weigh between both debit and credit, deciding which is the better option for them. While one may fit better with your lifestyle, you don’t have to stay limited to it. 

Many people own both debit and credit cards. You can use the advantages of the debit card for seamless payments when you have money in the bank.

Alternatively, a credit card can be helpful if you want to save money in the short term or don’t have the means to pay. Some merchants may not accept your debit card but can easily transact with credit cards. 

Having both gives you access to the best of both worlds.

Even if you aren’t a big credit card user, it admittedly has advantages. Some people use credit cards to build their credit scores and get a chance at rewards.

They’ll get the cashback and other incentives, then pay for their usage. The decision is yours, but nothing prevents you from applying and owning both.


The Bottom Line

Debit and credit cards each have unique uses and advantages. A debit card allows you to connect your bank to a card to make efficient transactions. 

On the other hand, a credit card opens up the option to extend your finances with a line of credit.

There are many types of these cards, and choosing from them will depend on your needs. Some credit card options may require you to build your credit score before you’ll be eligible. 

Whatever you decide, know that having both can help you create flexible financial options. You’ll get the best of both worlds and minimize the risk that either may present. 

If you’re looking to apply for a debit or credit card, consider applying for membership at 121 Financial Credit Union. We are a unique company in that we prioritize our members’ financial well-being over everything else. 

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