It’s easy to confuse your debit card with a credit one. In the end, they are both plastic cards that you make purchases with, they look the same and are basically used for the same thing. However, not all cards are the same.

There is a huge difference between a debit and a credit card that you should know about, so let’s see what this difference is.

Debit cards

A debit card is a card that you make payments with by drawing money directly from your checking account. This is done by placing a hold on a certain amount – the amount of your purchase which is later transferred to a merchant’s account. This transfer of money either happens immediately or it takes a couple of days to happen.

There is a standard type of debit card that draws on your bank account, as well as two others for which you don’t need a checking or savings account. Those two include electronic benefits transfer (EBT) cards and prepaid debit cards.

EBT cards can be issued only to qualifying users by state and federal agencies and prepaid cards allow you to make electronic purchases with the amount you preloaded on the card, this can be done without having a bank account.

Additionally, you can work with Cuscal Payments, one of the largest independent providers of payments solutions, and they can reduce the complexity of debit card programs with different types of services that they offer.

Pros and cons of debit cards

Just like every card, debit card, also, has its pros and cons. Let’s see what they are.

Pros of debit cards

With a debit card, you only draw on the money you already have in your account, so technically, you can’t go into debt, unless you overspend the amount on your card. That’s why, with debit cards, you should only stick with what you have and, in that way, avoid debt.

Debit cards don’t charge an annual fee and there’s no fee when withdrawing money at your bank’s ATM. The only fee you may be required to pay is for the maintenance of your checking account.

Cons of debit cards

Debit cards can’t earn you any points, miles, or rewards on purchases. Only if you have rewards checking account, you can get rewards that can save you money.

When using a debit card, you can’t build a credit history, and sometimes a credit history can help you show lenders that you can responsibly repay borrowed money.

Another drawback of debit cards is overdraw fees. If you overspend the amount that you have on your account, you’ll need to pay some expensive fees. So, of course, keeping track of the available funds and being careful not to overspend – money management is important!

Credit cards

A credit card is a card usually issued by a bank or some other financial institution. As a cardholder, you can borrow funds from an institution or a bank that issued your card but you first must agree to pay back the money you borrowed with interest and according to that institution’s terms.

There are many types of credit cards, from standard to charge ones. You can choose the card according to your credit score, and depending on the perks you want. But when choosing the type of credit card that suits you, don’t forget to consider interest rates and fees, as well.

Pros and cons of credit cards

Once again, there are certain benefits that you can get when using credit cards, but also there are downsides as well. Let’s check out the pros and cons of credit cards.

Pros of credit cards

The greatest benefit of credit cards is the ability to build credit history. For example, when you use your card to pay your bills and pay off the balance every month, you show how responsible you are with your credit card, which builds up your credit score.

When using a credit card, you’re also earning points and rewards that can save you money. Plus, you can use your credit card nearly everywhere, even abroad.

Cons of credit cards

The interest on unpaid balances is the biggest drawback of credit cards. If you keep spending funds off of your credit card but can’t repay monthly, the interest piles up, and high-interest rates can lead you into debt. If you’re not careful, you can easily damage your credit rating. 

So, now that you know how different these two types of cards are, you can choose the right one for you. And choosing the right card will largely depend on your habits and how you plan to use the card.