According to the statistics, 70% of Americans have at least one credit or debit card. And still, the difference between these two types of cards remains unclear for many. At first glance, it seems simple: debit cards allow you to keep and withdraw money from your bank account, while credit cards allow you to borrow money that needs to be paid back. But there are some more things to consider in order to choose which card is the right one for you.
FYI: If you need to borrow money and want to open a credit card to do so, there is a more convenient solution. You can apply for a loan from a trusted lender. MoneyASAP can connect you with vetted lenders quickly. A loan of $100 to $5,000 can be issued even to people with a low credit score. In most cases, you get cash the next day, which is faster than standing in line at a bank and waiting for credit card approval.
If you decide to find a lender online, a bank card can serve as a safe wallet for your credit. And after all, living without one is challenging these days. So, let us explain in detail all the essential differences between debit and credit cards to dot all the i’s and cross all the t’s in this topic.
How Credit Cards Work
In a nutshell, your credit card is basically an opportunity to get a loan at any moment. You are approved for a specific credit limit when you get a credit card, and you can freely spend the money within the set limit. But once you reach the threshold, you can no longer make purchases with it, at least until you put some money on your account to repay the debt. The credit limit is defined according to your credit risk and income. One more thing that can have an impact is the amount of debt you owe to other banks or lending organizations.
Each month you will get a bill from your card issuer. It will show the amount you have spent during the current billing cycle, any other payments on the account, and the balance remaining from the previous month. You are only required to repay the minimum amount, not the entire credit balance. Note, however, that you usually pay interest on the whole balance.
The main danger of credit cards is that you spend money with the feeling that it belongs to you. Therefore, spending a significant amount is easy without even noticing it.
Main advantages of credit cards:
- Help you build a positive credit history in a relatively easy way
- Provide free loans if the bill is paid in full each month
- Give more flexibility when booking a hotel or renting a car.
How Debit Cards Work
Debit cards are created to let you buy things without carrying cash. With this card, you don’t have the possibility of using more money than you actually have and building an unmanageable debt.
The drawback of debit cards is the scope of purchase protection. The thing is, debit card transactions are very similar to cash transactions. Therefore, it is sometimes hard to get your money back. For instance, if you want to return a damaged or unsatisfactory product bought with a debit card, many companies will only offer you an exchange or store credit.
Main advantages of debit cards:
- It is super easy to get one
- No need to worry about interest rates and monthly bills
- You don’t have to carry cash with you anymore.
Wrapping Up
When deciding which bank card you want, consider a few things. Debit cards are best for small, everyday purchases — a box of muffins for the guys at work or a bottle of Coke from the grocery shop when you go for a walk on a hot day. It’s best to use a credit card for big purchases such as laptops, dishwashers, and furniture. Such purchases can hit your finances hard, and you won’t be able to afford them in one fell swoop. A large purchase will become more reasonable if you spread your credit card payments over three or four months.
Author’s bio:
John is a financial analyst but also a man of different interests. He enjoys writing about money and giving financial tips, but he can also dive into relationships, sports, gaming, and other topics. Lives in New York with his wife and a cat.
