Debit Cards vs Credit Cards

Although debit cards and credit cards have similarities, they are very different. In most cases, you must be approved for a credit card after the company runs your credit score. If you are not careful, the use of credit cards can put you deep in debt.  There’s a great article comparing the two types of facilities here.

Credit Cards

When using credit cards, you are using money that does not belong to you. When the time comes to pay the money back to the credit card company, you must pay a certain amount of interest, usually depending on your credit score. When you make a purchase, if you pay the money back before a certain time period, you may be able to avoid paying interest.

Credit card companies tend to charge a lot of fees when people make mistakes. If you spend more than your line of credit or you are late paying your bill, you will have to pay associated fees.

If you are unopposed to paying fees, credit cards can be useful during times of need. For example: If your washing machine quits working, you may not have enough extra money to buy a new one. However, if you have a credit card, you can purchase a new washing machine and pay the money back a little at a time.

Debit Cards

Debit cards are very convenient and can keep you from having carrying cash. Unlike credit cards, when you use a debit card, you are using money from your bank account. When using cheques, it may take a while for the money to be withdrawn from your bank account. With the use of debit cards, transactions usually show up in your account immediately. Most banks do not charge fees for the use of debit cards unless you withdraw money from an ATM that is not owned by your bank.

Take caution when using debit cards, however. Just as you would when using your chequebook, you should keep record of all purchases made with your debit card. Deduct all purchases from your account balance. If your bank provides you with overdraft privileges, you could go into debt with your debit card in a similar way that you do with credit cards. If your bank account drops to a negative balance, it is likely that your bank will charge you an overdraft fee.