With 16-digit numbers, magnetic strips, expiration dates, chips, the debit and the credit card look pretty much the same. Far too many people nowadays don’t understand the difference between these two, making it difficult for them to realize which card they actually need to use and when. Both are quite easy to use and both are convenient when it comes to making online payments, and the difference between them may often go unnoticed by some individuals, leading them to using one or the other without really understanding what’s best for them.
And yet, that difference is really not that subtle or insignificant. It is the lack of knowledge regarding these financial instruments that leads people towards using the wrong cards at the wrong time, which can have a significantly negative effect on their pocketbooks. Understanding these two cards in more details, and figuring out how they differ from one another will help you realize more easily which one you need and which one you should use at one point or another. Check out the option to choose credit when paying with a debit card, as that’s often a possibility you should be aware of as well.
Anyway, if you’ve decided to go plastic, so to speak, and use one of these cards, you will absolutely need to understand how both of them work so as to get a clearer idea about which one you actually need. Making the choice on the spur of the moment is not the best move, given that it could have a substantial impact on your overall financial situation, and you don’t want that impact to be negative. So, taking the time to figure both of these out and get all your facts straight on everything is of crucial importance.
It could also happen that you already have both a credit and a debit card in your wallet, but you still don’t understand the difference between those two, meaning you don’t know when to use one or the other. In that case as well, the crucial thing to do is get a clearer picture on how both of these financial instruments work, aiming at figuring out which one to use at which points. Understanding the difference won’t be difficult, as you’ll quickly see. It’s just that people usually fail to even consider the difference and they just go on living their lives and assuming that these two tools are the same, when they’re not.
Table of Contents
What is a Credit Card?
Starting with the credit card. This is basically a financial instrument issued by a bank or a financial institution, allowing its user to basically borrow money from that institution in case of need. Of course, the cardholders agree to return the money at a particular interest rate and under important terms that have been previously agreed on. There is a variety of categories in which these cards are issued by the relevant institutions.
The standard one basically extends a line of credit to the user. Credit they can use for making purchases, as well as balance transfers and cash withdrawals. These usually don’t have an annual fee. And, as you might have concluded it on your own, they are similar to loans. Except that, with loans, you get the full amount you’ve been approved for immediately, and with the line of credit, you get access to the money, and use and withdraw it only if you need it, meaning you only pay interest on the amounts you’ll actually spend.
Apart from the standard option, there are also premium, reward cards, balance transfer ones, secured credit cards, as well as charge cards and credit building cards. Those are the most common types you can get from the issuers, with each one of them having a specific purpose, such as building your credit score, or earning rewards, including airline miles and similar things. Depending on what the user wants and depending on their specific spending habits and the overall financial situation, they will choose one of these cards to best suit their needs and their circumstances.
Another great thing about credit cards is that they offer fraud protection, as well as protection against unauthorized purchases, which is kind of a big deal for the user. Of course, understanding that too much spending leads to debts is important, meaning you have to learn to use your credit card responsibly so as to benefit from it. The interest rates and the fees you’ll be offered on these financial instruments can vary quite a lot depending on the type of the card and on the issuer you choose, so that’s something to be careful about when trying to select the perfect solution for you.
What Is a Debit Card?
As opposed to the above option, a debit card uses the money that’s deducted from your specific bank account. Basically, these are linked to your bank account, allowing you access to it at any time of the day and night. Thus, they are the perfect substitution for cash and can be quite beneficial for everyone, especially when traveling and thus not exactly wanting to carry a lot of cash around with you. People can use them to make payments both in stores and online, as well as to withdraw cash from ATMs.
Getting a clearer understanding of the debetkort, perhaps with the help of the source at kredittkortinfo.no/debetkort/ and similar sites, you’ll also realize that you can sometimes even borrow money from your debit account using overdraft. Meaning, you’ll be allowed to send your balance into the negatives if you need some extra money at one point or another, but that will incur some additional charges. In this particular case, they function a sort of like a credit card, but the amount you can get will be much lower.
The great thing about the debit cards is that they help you avoid getting in debt, because you’ll basically be using the money you have, and not borrowing money from the institution that provided this financial tool to you. For people that are worried they may go overboard and spend far more than necessary, thus get in great debt, the debit option is certainly better than the credit one. With it, you won’t have to worry about any interest charges, and there are basically little to no other fees you’ll have to pay. So, it’s the safe solution.
While the first solution we’ve discussed, that is, the credit card, helps you build your credit history, thus making you eligible for some loans you may want to get in the future, the debit card can do no such thing. Since you’re using your own money, instead of borrowing and returning on a regular basis, you won’t have a way of proving your creditworthiness. Thus, if you’ve been hoping to build your credit score, the debit solution might not be best for you.
What’s the Main Difference?
So, what exactly is the main difference between these two options? Just ask yourself one question so as to understand that difference. Where is the money coming from? If it’s coming from your bank account, then you’re using a debit card, and if it’s coming from the financial institution that issued you this tool, then we’re talking of a credit card. As explained, the debit solution is the safer one, as you won’t be able to get in huge debt with it, but the credit solution allows you to build a credit score, meaning that both of these come with their own advantages and disadvantages.
Which One Should You Choose?
Having figured out that there are advantages and disadvantages to both of these options, you’re now most likely wondering which one you should actually go for. Not an easy decision to make, but you’ll be able to make it if you ask yourself what it is that you’re trying to achieve with the card. If you’re merely looking for something to replace your cash, then the debit option is best, because it comes with little to no fees and no interest charges at all, since you’ll be using the money you already have on your account, instead of borrowing it and then having to repay it in a certain amount of time, hoping not to incur great interest charges.
This is the option you can freely use without worrying you’ll get in debt. And, on top of that, if you do wind up needing some quick cash at one point or another, you’ll be able to send your balance into negative and get it. That, of course, depends on the issuer you’ll choose.
On the other hand, if you’re looking to prove your creditworthiness, hoping to get a loan in the future, or if you want to get some benefits such as airline miles, cashback, and similar things, then you should go for the credit card option. Basically, considering your specific needs will bring you to the right answer. And, of course, whatever you choose, always make sure to find the perfect issuer to provide you with the best offer.