The Difference Between A Debit And A Credit Card

Almost everyone is using “plastic” these days, but many don’t understand the difference between the traditional "plastic” or credit cards and bank/debit cards.

This misunderstanding can be a problem because each type of card has their own pluses and minuses and not knowing how they affect your financial life can and often will lead to financial trouble.

The primary difference between debit and credit cards is when you actually pay for the goods and services that you purchase on them. When using a credit card to make purchases, you are delaying your payment because you are using a line of credit from your bank or other financial institution, with the expectation that you will be repaying the money later.

Since your debit/bank card is usually attached to your bank account, when you make purchases with your debit or bank card, you are paying for your purchases with real dollars. The money for your purchases are debited directly from your account.

It doesn’t matter whether you select to use the debit option on your card (putting in your pin#) or the credit option (signing receipt) both come out of the same place so don’t be fooled.

Published: May 26, 2020

If you are trying to establish or maintain a solid credit history, then the best choice is to use your credit card since most debit cards do not report your payment history thus they don’t affect your credit score. If you are trying to get out of debt then the best choice is a debit card, since it helps you avoid interest charges, and forces you to live within your means since the money comes out immediately.

The important thing to be aware of is that both types of cards have fees associated with them. For example credit cards charge interest on your balances which can add up over time and your debit card charges overdraft fees should you make a payment that is more than you have in your account and also ATM fees for using an ATM to withdraw money from your account.

Another thing to point out is that both credit and debit cards may come with a variety of perks and rewards. Your bank may offer rewards points for using your debit card – these points can be used at various local retailers and your credit card may offer you also offer perks like frequent flyer miles.

The key to financial success is to be knowledgeable and make smart financial decisions so make sure that you read all the fine print and know exactly what your options, fees, interest rates, etc. are so that you can achieve your financial goals.