Credit Card Series: Credit Cards vs Debit Cards

Have you ever wished you knew a bit more about debit and credit cards? This article explains the difference between the two, and the pros/cons of using each for spending.

Debit Cards

Debit cards work differently, and unlike credit cards, they don’t involve borrowing money. When using one, a cardholder is spending money that they have deposited in the bank. There is no interest charged, and the fees are often less than those of credit cards. The biggest benefit is that using a debit card for spending can help to prevent debt accumulation. However, debit cards don’t have rewards programs and won’t build any credit. Both credit and debit cards are generally secure and protected.

Credit Cards

Credit cards can be issued from a financial institution like a bank, and they allow the user to borrow funds from the institution. By doing this, the cardholder isn’t spending their own money, but is almost taking out a mini loan. Unfortunately, credit cards aren’t just unlimited free money. A cardholder makes payments to the credit card company with interest, while adhering to the cardholder’s terms. The main benefit of using a credit card is its ability to build positive credit for responsible spenders who pay it back on time. Credit card companies also frequently offer rewards like travel points and discounts for using their cards. The cons are that debt can accumulate when borrowing money, and that there are many fees associated with owning a credit card. 

Depending on your spending habits and financial goals, one card might be a better choice than the other.