The Secrets of Debit Cards vs. Credit Cards

    Swiping your card at the checkout register instead of paying cash or fumbling with a checkbook is certainly a convenience. However, you need to know that not all cards are created equal.

    When choosing between a credit and debit card, you’ll want to open an account that fits with your financial goals. The best way to make an informed choice is to dive into the details. Here are the main differences between debit and credit cards as well as the pros and cons of each.

    Debit Cards

    You can typically use a debit card anywhere that you’d use a credit card. However, unlike credit cards, debit cards pull funds directly from your bank account. You can also use your debit card to withdraw cash from your checking account at an ATM.

    If you’re considering a debit card, consider these pros and cons.


    Controlled Spending

    When using a debit card, you can only spend the money that you already have. This makes it much more difficult to spend beyond your means, and that’s a good thing. Funds come directly out of your bank account so there’s nothing to pay back. You also won’t be subject to interest rates, which can help you avoid debt.

    Fewer Fees

    Debit cards typically come with fewer fees than credit cards. You won’t need to dish out an annual fee or worry about late payment fees, for example. However, there are some fees to keep in mind. Cardholders may need to pay a fee for using an ATM that’s not affiliated with your institution. You might also face an overdraft fee if you spend over your available balance.

    Available Cash

    You might not use cash as much as you used to. However, your debit card is a great tool for accessing cash when you need it. You might have to pay ATM fees, but the ability to withdraw cash can offer peace of mind.


    Limited Funds

    A limited amount of cash is often a perk if you struggle to control your spending. However, relying on a debit card can be tricky when making larger purchases. Credit cards allow you to purchase now and pay later. This isn’t an option with debit cards. You need to make sure you have the full amount in your bank account before swiping your card.

    Overdraft Risk

    If you aren’t closely monitoring your balance, you run the risk of overdrafting your account. Overdrafts can be a headache, especially if you don’t notice them at first. Many banks charge overdraft fees for each transaction after your balance dips below zero.

    To avoid these charges, be sure to set up text and email alerts on your account. This will keep you in the loop about transactions and available balances.

    Credit Cards

    Simply put, credit cards allow consumers to borrow money, at interest, from a financial institution. The cardholder agrees to pay that money back on a monthly basis. If you don’t pay the full amount every month, the financial institution charges interest on your card balance.

    You’ll need to apply for a credit card. The card issuer will approve or deny your application based on your credit history. If approved, they’ll allocate a line of credit (a.k.a. spending limit) to your account. Again, this line of credit will depend on your income and credit history.

    So, is a credit card the right choice for you? Here are some pros and cons to consider.


    Credit Building

    One of the main perks of opening a credit card is the ability to build up your credit rating. Limiting your credit utilization and making on-time payments will boost your credit score. With a positive credit history, it will be easier to qualify for larger loans for a car or a first mortgage.

    Just remember that mismanaging a credit card will harm your credit history. Missing payments and maxing out cards will drop your score, and repairing your credit rating can be difficult.

    Fraud Protection

    Credit card holders have limited fraud liability under federal law. As long as you promptly report fraudulent charges, you won’t be liable for more than $50 of the charge. Debit cards have protection as well, but your personal liability is often contingent on how quickly you report the incident. Some credit cards offer other types of protection as well. Be sure to keep an eye out for those programs and make sure you understand what they offer and how much they cost.


    Many credit card companies offer rewards programs to their customers. You might be able to earn travel points or cash back with your purchases, for example. These rewards shouldn’t be the primary reason you open up a credit card account. However, cardholders who manage their payments well can certainly score freebies and savings.



    When swiping your credit card, you’re spending that financial institution’s money. You have to pay the money back, but you don’t actually see your purchases come out of your checking account. For many, this “temporary blindness” leads to some serious overspending.

    Where credit card holders get into trouble is when they spend more than they can pay back. Your account balance starts to accrue interest, and you get into debt. Credit card debt can be hard to overcome. Decide in advance to control your spending habits before opening a credit card.

    Hefty Fees

    Credit cards often include fees that debit cards don’t. You may need to pay an annual fee, balance transfer fee, and/or foreign transaction fee. The account will be subject to interest and late payment fees if you carry a balance or miss a payment. Be sure you understand and agree to these fees before you open a credit card account.

    Choosing the Right Card for You

    Choosing between a credit and debit card isn’t always a straightforward decision. Many people have both in their wallets to enjoy the benefits of each. However, if you’re deciding between the two, you’ll want to consider your lifestyle and unique financial needs.

    Eager to build your credit and enjoy rewards? Consider opening a credit card. Worried about overspending and falling into debt? It might be best to stick with a debit card for now. Think about how you manage your money, what your purchases look like, and how closely you want to monitor your finances.

    The right card should support your long-term financial health. As with any money decision, take the time to weigh the pros and cons of each before signing on the dotted line.

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