Credit Cards vs. Debit Cards: What's the Difference?

In today's fast-paced economy, we are so quick to pull out our cards for payment rather than cash. Just think about all the times we've quickly double-tapped our phone's power button to pull out Apple Pay.

Plus, you've always heard the advice that people should immediately open a credit card once they're 18 for all the benefits. However, many people prefer to use debit cards instead, making us wonder what the true differences are between credit and debit cards.

A credit card is a form of payment that uses money borrowed from the bank to pay for goods and services but must be paid back by the cardholder who spends that money.

A debit card is a form of payment in a card form that can be used in place of cash to make purchases. It draws money out of the checking/savings account it is linked to.

Key Differences Between Credit Cards and Debit Cards

• Source of Funds: The fundamental difference is where the money comes from. Credit cards use borrowed funds, while debit cards use your own money.

• Interest and Fees: Credit cards can come with interest charges if balances aren't paid in full, whereas debit cards usually don’t, though overdraft fees can apply.

• Credit Building: Credit cards can help build your credit score when used responsibly, while debit cards do not affect your credit score.

• Consumer Protection: Credit cards often offer better fraud protection and dispute resolution compared to debit cards.

Which One Should You Use?

Credit Cards are ideal if:

• You want to build or maintain your credit score.

• You can pay off your balance in full each month to avoid interest charges.

• You want to take advantage of rewards and perks.

• You need a safety net for emergencies

Debit Cards are ideal if:

• You prefer to spend within your means and avoid debt.

• You want to avoid interest charges and simplify your financial management.

• You’re focused on budgeting and tracking your spending directly from your bank account.

• You don’t want to worry about accumulating debt.

Overall, both credit and debit cards have their unique advantages and disadvantages. The choice between the two depends on your financial habits and goals. By understanding how each card works, you can make smarter decisions about when and how to use them, ultimately helping you manage your finances more effectively. Your ability to distinguish between the two cards and know when to use each can save you time and money and will give you a more promising financial future.