Differences Between Credit and Debit Cards

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Differences Between Credit and Debit Cards

Credit and debit cards are easy to get mixed up, and with good reason. After all, both pretty much look the same and when you use them to make a purchase online or in a shop, there doesn’t seem to be much difference about the process you go through in order to do so. However, there are crucial differences between the two cards that are important to be aware of, such as how the card works and where the money is coming from. Knowing these differences will enable you to make wise decisions on which card to use for which particular purchases, and help you avoid making mistakes.

Debit cards can be thought of as a convenient alternative to carrying cash with you. They are connected to your bank account, so any money you spend through your debit card is deducted automatically from the funds in your account. Thanks to this, debit cards allow for a greater transparency over your typical spending habits and, if used to pay bills and for everyday costs, allow you to get a good idea of what your average monthly budget needs to be – or whether or not you need to cut down on spending.

Because the money comes out of your account, it’s also more difficult to overspend on your debit card. While many banks offer the chance to spend more money than you have and offer you money you can borrow if you do spend too much – this is called an overdraft – the thought of taking your bank account below zero is unappealing to many and, even if it does happen, overdrafts have a limit that cannot be breached without a fine.

Credit cards, on the other hand, allow you to spend money that does not belong to you and then pay it back later. Credit cards usually come with a limit that you cannot spend over, which can help people avoid overspending. When purchases are made with a credit card, there is often a window of time where you can pay the funds back without getting charged interest, otherwise you will be required to pay interest on your borrowings until the debt is cleared. When you spend on a credit card, you can pay the money back by doing balance transfers from your bank account to your credit account.

Debit cards tend to be used for everyday purchases whereas credit cards are often used for large purchases or unexpected expenses. Using both cards wisely will help you avoid any unwanted fines or charges and knowing the differences means you won’t come into any trouble in the future! Both cards have their perks and can be used together to build a sturdy financial life for yourself.