What’s the Difference Between a Debit and a Credit Card?

What’s the difference between a debit and a credit card?

Although both debit and credit cards are common financial tools used to make purchases, the differences between them and the potential impact to your finances may not be as clear.  Here, we will discuss the major differences between a debit and a credit card, as well as which one may be right for you.

Debit Cards

Debit cards have replaced your old check book. For the rest of you, debit cards allow you to pay for purchases with money directly from your bank account.  Now, you can use your debit card and the money is similarly deducted in a few days, although you’ll likely see a pending transaction notice for your purchases.

Benefits of a Debit Card

The major benefit of a debit card is that money from the purchases you make come directly out of your account. This means that you are using money you already have to make your purchases and you’re far less likely to make unnecessary purchases or spend beyond your means. 

Credit Cards

Credit cards allow you to make purchases with money that you may or may not have. When you apply for a credit card, the lender assesses your credit worthiness and ability to pay back balances, then either approves you for a credit limit or denies you. You make purchases with your card and then must pay a minimum amount back every month. Any balances you carry will accrue interest.

Benefits of Credit Card

There are tons of rewards cards out there offering a variety of different benefits. No matter the reward, the basic idea is that you earn a percentage of points/cash back with each purchase that can then be redeemed. You can also earn sign-up bonuses for spending a certain amount on a card within a certain time period.

Which Card is Right for You?

If you’re someone who is prone to making purchases outside your budget and carrying a balance every month, then a debit card that will limit your ability to spend beyond your means is probably best. If you’re able to pay off your balances every month and spend within your means then taking advantage of credit card benefits may be a smart financial decision.

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