What are the differences between debit and credit?

Debit and credit are both cards that can be used to buy goods and services and are issued from banks or lenders carrying the Visa or Mastercard logo. Let’s break down what makes them different. 

 

When you use a debit card, the money is taken out from your own checking account as you swipe. This is so you don’t need to withdraw cash or write a cheque every time you make a purchase in-store. You’re only able to overspend what’s in your checking account with your debit card if you have an overdraft facility available. 

 

When you use a credit card, however, the money is used from a limited line of credit attached to your account. This credit line must be paid back through monthly instalments. This gives you more time to pay back the money that you’ve used. The amount of credit available to you depends on your creditworthiness and your credit score, and you should try not to spend over this amount as it can reflect badly on your score. 

 

How are debits and credit used?

Both cards are used to make purchases, however, they can differ further beyond this. 

 

Debit cards are used to:

  • Stay out of debt by using your own funds
  • Avoid annual fees from withdrawals and other transactions
  • Avoid credit scrutiny by not using a line of credit
  • Simplify finances by having one quick access to money

 

Credit cards are used to:

  • Make everyday purchases without a PIN
  • Build credit by keeping up with monthly repayments
  • Pay after a grace period
  • Spend up to a higher limit than what you own
  • Benefit from fraud protection and insurance
  • Earn rewards and cashback

 

Which is better, a credit card or debit card?

Each card has its pros and cons, depending on why and how you are using them. Ultimately, how you manage your money determines each pro and con of the cards. 

 

A pro of having a debit card is no debt. You’re not using borrowed money, only your own. However, if you’re low on funds your card could be declined unless you have an overdraft facility available. A con of credit cards is that they carry additional fees, unlike debit cards. But they are useful to make large purchases as you don’t need to pay them back immediately. Credit cards also provide better fraud protection and insurance against your purchases. Debit cards are easier to get than credit cards and are simpler to use when making smaller purchases. 

 

Assess why you need either card and how you will use them. This will affect how you manage each card, and make sure that both cards are put to good use. For example, if you need to make daily purchases, a debit card is crucial to have. If you need to build up your credit score, having a credit card and keeping up with payments will help you get there. Either way, both cards can help you get where you need to in life and make financial decisions and goals easier.