Credit Cards vs. Debit Cards

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So you probably are already familiar with the biggest difference between credit cards and debit cards: credit cards let you borrow money to make a purchase, which you then have to repay with any interest that accrues on any balance you keep on that card. A debit card, on the other hand, is just a more convenient way to access the money that’s already in your bank account. This can be through an ATM withdrawal, by making purchases at stores that accept debit or credit cards or by buying things online. Very straightforward.

But there are a few other differences between credit cards and debits cards that may impact the way that you choose to spend your money:

Repayment and bills: If you’re charging purchases to a credit card, you’re billed monthly for any outstanding debt, which is also called a balance. If you’re using a debit card on the other hand, you don’t get a bill that you owe money, since money is withdrawn from your checking account when you make a purchase.

Interest and fees: If you borrow money and keep a balance on your credit card, you’ll owe more than what you charged because of interest. Interest usually accrues on a monthly basis and is based on the credit card’s APR (Annual Percentage Rate). You may even be charged an annual fee just for having the privilege of using a credit card. Debit cards on the other hand? No interest owed and usually no fees.

Credit history: If you use a credit card responsibly, it can actually help you improve your credit history and your credit score. Mismanage it, however, and you can do some serious damage to your credit. A debit card on the other hand is fairly neutral – using it regularly doesn’t help or harm your credit.

Fraud: If someone steals your credit card or credit card number, you’re entitled to certain protections against unverified charges or fraud. You likely have less protection against fraud with a debit card.

There are obvious pros and cons to both credit cards and debit cards. Whichever option you use for your everyday purchases, just don’t spend more than you have!

About Stephanie Halligan

Stephanie is the founder of The Empowered Dollar, a site dedicated to helping millennials to fix their finances and find their stride in money and life. When she's not blogging, Stephanie is designing school curricula and online games to teach students about smart money management.

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