Unearth Your Fortune

By Maddy Scheckel

March 9, 2023

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Let’s play Jeopardy. 

The clue is: A rectangular piece of plastic that you keep in your wallet and use to make purchases.

What is: a credit card!

Wait, no. 

What is: a debit card! 

Wait –hmm. 

What’s the difference between those two, anyway?

84% of Americans have a credit card, and 83% have a debit card. But it’s still hard to tell them apart!

That’s why I’m here to help. I’ve laid out the credit card vs debit card comparison in as simple terms as possible. So you’ll know which to use and when. 

What is a Credit Card?

A credit card is a card you can use to make payments on credit, then pay for them later. 

Here’s how it works:

  • Step 1: You (the consumer) apply for a credit card from a bank or other financial institution (the lender).
  • Step 2: The institution looks at your credit history, then decides whether or not to give you a card.
  • Step 3: You use the credit card to make purchases and pay bills. This creates a balance (debt) that you’ll have to pay back.
  • Step 4: You receive a credit card bill that asks for a minimum payment. You can either pay off the entire balance or make only the minimum payment. If you make only the minimum payment, you’ll be charged interest on the remaining balance. This interest increases your debts.

What is a Debit Card?

A debit card is a type of payment card that draws money directly from an account. This is usually a checking account from a bank. 

If you open a checking account, you can expect the bank to give you a debit card. 

You can use this card to withdraw money from an ATM, make purchases in stores, and complete online payments. 

The money will come right out of your account, so there’s never any debt involved.

Most debit cards are attached to bank accounts, but not all. Other types of debit cards include:

  • Electronic benefits transfer (EBT) cards that allow you to spend government benefits
  • Prepaid debit cards that come loaded with money, which you can use until the money runs out.

Debit cards and credit cards both allow for easy online purchases.
Source: Unsplash

What is the Difference Between Debit Card or Credit Card?

When people talk about credit card vs debit card, the main difference is where the funds come from when you make a purchase. 

With a credit card, you don’t actually use your own money to make the payment – at least not at first. 

The payment amount is simply added to your balance, and it’s up to you to pay off that balance later on.

With a debit card, you use money that’s already yours to make the payment. 

In the case of a traditional debit card that’s tied to your checking account, the money comes out of your account. 

Got $1,000 in your account? Make a $200 purchase? 

You’ll end up with $800 in your account. It’s pretty simple.

But this isn’t the only difference in the credit card vs debit card discussion. 

Credit cards also tend to have more purchase protections than debit cards. That means you can contact the credit card company if you buy something that’s damaged or ends up being stolen, and they’re more likely to refund your money. 

Another key difference is that credit cards often have reward programs. This means you can get travel points, cash back, and even perks like airport lounge access.

Debit cards are great for making payments and taking out cash, but they don’t come with these “extras.”

Advantages of Using a Credit Card

There are several reasons why so many people have credit cards. 

In fact, both sides in the credit card vs debit card debate have a lot going for them. That’s why most people have both!

Here are the main benefits of using a credit card.

More Time to Pay for Purchases

Sometimes you need to make a payment right now – but you just don’t have enough money in your bank account. 

With a credit card, you can make the payment, then pay off your balance when you can. This can be risky as debt has a nasty way of sneaking up on you, but it’s also a useful financial tool.

Use it responsibly, and it can help you manage your finances.

Helps Build Your Credit Score

Your credit score is a magic number that shows potential lenders how trustworthy you are as a borrower. 

Want to get a loan? Take out a mortgage? Finance a new car? 

Your credit score will affect your chances. 

Having a credit card and using it responsibly is one great way to boost your credit score and increase your financial flexibility.

Enjoy Rewards and Perks

Credit cards often come with rewards and perks – like points you can use to pay for plane tickets and cash back on certain types of purchases. 

Don’t let these rewards seduce you. 

Many starry-eyed consumers have spent their way into oblivion in the dogged pursuit of points. 

But if you use the card for purchases you were planning on making anyway, the rewards can translate into serious savings. 

Great Backup Plan for Emergencies

Sometimes, an emergency strikes, and you simply have to make a payment. 

Natural disasters, medical emergencies, and family issues can all demand an immediate outlay, regardless of whether you’ve got money in your bank account. 

With a credit card, you can make these necessary payments, then pay down the balance when you can.

Credit cards often come with “travel points” and other rewards.
Source: Unsplash

Advantages of Using a Debit Card

No credit card vs debit card discussion would be complete without recognizing the benefits of sticking with a debit card. 

There are no rewards, of course, and you won’t build any credit, but debit cards still have a lot to offer.

Here are the main benefits of using a debit card.

Easy to Take Out Cash

A debit card is a convenient way to pay and withdraw cash from an ATM!
Source: Unsplash

Even in today’s high-tech world, it’s still important to have cash on hand – and a debit card makes getting cash easy. 

All you have to do is find an ATM. 

Some stores will also offer you “cash back” when you make a purchase. This means the cashier will hand you money that comes straight from your bank account.

No Interest Payments

You only pay interest when you borrow money. 

With a debit card, you’re not borrowing money at all. You’re just spending money you already own. 

That means you won’t have to pay any interest.

Avoid Falling Into Debt

Unlike credit cards, debit cards can’t produce debt. 

That’s because debit cards help you spend money that’s already yours. 

Sure, you can blow through your entire checking account (hardly ideal), but at least you can’t put yourself into the red!

Is it Better to Have a Credit Card or Debit Card?

Here’s my big takeaway from the credit card vs debit card discussion: Neither is “better” than the other. 

They both have their benefits, and it’s on you as a consumer to decide which you’ll use.

But I will say this: Using a credit card is a good idea for anyone serious about improving their finances. 

You can build credit and protect your purchases, all while taking advantage of helpful rewards.

The key with credit cards is to spend responsibly and then pay off your balance each month. 

Worried you can’t do that? 

Then congratulations! You deserve some serious credit for being so honest with yourself. 

And you should consider sticking with just a debit card to keep yourself out of debt.

Of course, the standard move these days is to have both a credit card (or threeand a debit card. 

That way, you can spend with the credit card to improve your credit score and earn points while using the debit card to get cash from the ATM. This is the strategy that maximizes financial health and convenience. 

Commonly Asked Questions About Credit Card Vs Debit Card

Are Debit Cards the Same as Credit Cards?

Both debit cards and credit cards can be used to make payments, but they’re not the same. Debit cards are usually connected to a checking account, so the money comes out of the bank. Credit cards let you borrow money for the payment, which you’ll have to pay back later. 

Is a Credit Card or Debit Card Safer?

Credit cards are generally safer than debit cards, especially when it comes to online purchases. That’s because they come with better anti-fraud and purchase protection features. With a credit card, you’re more likely to get your money back if you get ripped off. 

Should I Use a Charge Card or a Debit Card?

Both charge cards and debit cards have pros and cons, so which is better depends on the situation. Charge cards can come with amazing rewards, but you face really high costs if you don’t pay off your balance – that’s what makes a charge card different from a credit card. 

Debit Card Vs ATM Card?

Both debit cards and ATM cards draw money from your checking account. What sets them apart is how you can use them. You can use a debit card anywhere that accepts card payments, while ATM cards are only for withdrawing cash from an ATM. 

Difference Between Credit and Debit?

Credit cards allow you to make payments by borrowing money that you’ll have to pay back later. Debit cards make payments by taking money that’s already yours directly from your checking account.

Similarities Between Credit Card and Debit Card?

What sometimes confuses people in the credit card vs debit card discussion is that the user experience is often identical:

  • For in-person payments, you swipe/insert/tap.
  • For online payments, you enter the card number, security code, and expiration date. 

It’s where the money comes from that is the difference. 

Can You Earn Rewards with a Debit Card?

Most debit cards don’t allow you to earn rewards, but there are a few that do. The Axos CashBack Checking card is one example. It is a debit card that can earn you 1% “cash back” on purchases. 

Debit Cards Vs Credit Cards Pros and Cons

Debit cards help you avoid falling into debt, but they don’t build credit, and they come with less protection for consumers. Credit cards help you build credit, protect yourself from fraud, and earn rewards, but they come with the risk of falling into debt and paying large amounts of interest.

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