They look the same… they must be the same, right? In actuality there are many differences between a credit card and a debit card.
For starters, the main difference is that using a debit card subtracts the transaction amount from a balance of money you already have (pay now) while a credit card allows you a credit limit, which you can pay for at the end of the month (pay later).
How do debit cards work?
- You don’t have a credit limit.
- You are simply spending the money saved up in the current or savings bank account linked to your debit card.
How do credit cards work?
- Depending on your credit history, employment and other financial matters, the bank will decide on a credit limit.
- When you use a credit card, you are being “lent” money and are expected to pay it back.
- You usually have 30 days to pay off the card’s outstanding amount before the amount due gets charged with interest.
What’s best for me?
What’s best for you depends on the type of spender you are. If you are responsible with your spending habits and diligent with your repayments, credit cards may be better for you as you stand to gain a larger variety of benefits and rewards.
Otherwise, it’s best to have a debit card. It makes it virtually impossible to go into debt and you are more likely to spend wisely, in fear of emptying your entire bank balance in one, great big shopping spree.
Now you know the ins and outs of credit and debit cards!
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