Debit Card vs. Credit Card: How are They Different?

People use both debit and credit cards to make purchases. However, both cards have different processing methods.

Debit cards are associated with your bank account, which means when you make a purchase, the amount of money will be deducted from your bank account automatically.

On the other hand, a credit card will give you access to credit, which allows you to borrow money, use it, and repay the amount with interest fees.

Debit Card

A debit card is an alternative payment method to cash, and there are two types of debit cards, such as prepaid debit and bank debit cards. It is used to withdraw cash from the ATM quickly and helps you monitor your spending by knowing the amount of money in your bank account.

You can set up mobile alerts to keep track of your card activity. The exciting thing about debit cards is that you don’t have to pay interest fees on your purchases. On the other hand, using a debit card does not help you build a credit history, which is required for improving your credit scores.

When you use a debit card, you will be liable for any fraudulent charges on it. If someone steals your debit card or you lose it, the Electronic Fund Transfer Act will limit your responsibility for any unauthorized charges. You will have to report the theft within a few business days. Otherwise, the authorities will not be responsible for recovering your money.

Credit Card

A credit card is a different payment method from a debit card, which offers you a line of credit. It allows you to borrow money and use it for purchases. Some credit card issuing companies allow people to get cash advances with higher interest rates.

You can use it to transfer money to any bank account or third-party service with small fees. When you use a credit card, you agree with the issuing company on paying interest charges.

There are many advantages of credit cards over debit cards. For example, the Fair Credit Billing Act will limit a person’s liability to $50 for any unauthorized charges. There are some companies that offer zero percent liability charges in the event of card theft or loss.

Related: How Good Credit Can Help You in Life

The primary benefit of credit cards is that they help you build a credit history. Moreover, you can use rewards cards to earn cash back on certain purchases. Some cards offer points, which can be used to make online purchases. A credit card is the best option in times of emergencies, especially when you don’t have enough cash to tackle the situation.

On the other hand, credit cards have many downsides. If you overuse a credit card, you will have to pay higher interests, which in some cases become too expensive. The issuing company will set a credit limit, which means you can’t use more than that. If you fail to make payments at the end of the month or the end of the billing cycle, your debt will increase.

Next: 5 Tips for Investing in Your 30s

Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry for many years holding numerous licenses in multiple states. He currently helps operate cashkingco.com and is our resident expert on all things finance and a great writer. Thomas is also an avid outdoor enthusiast that loves fly fishing streams in the Western United States. LinkedIn Profile