How are Debit Cards and Credit Cards Different?

If you are like many consumers nowadays, it is likely that you possess both credit and debit card. If you’re a frequent traveler, it is also possible that you have your international debit card available with you at all times.

While unprecedented, the massive rise of credit, debit, and even international debit cards is not at all surprising. For starters, these innovative and highly beneficial financial tools offer peerless ease and convenience as well as other enticing benefits that are hard to match.

Since they share several surface similarities, it’s easy to mistake one from the other. However, if truth be told, they actually also have many distinct qualities that sets them apart from each other. Read on and discover how debit and credit cards differ and which among the two is likely to suit your needs best.

Seemingly Identical But Actually Different

The fact that debit and credit cards look almost identical is no longer up for debate. They have 16-digit card numbers, expiration dates, and magnetic stripes. However, that’s actually where the similarities end.

Unlike debit cards, credit card holders have the option to borrow money from the issuer. They can use the borrowed money to purchase items or withdraw money. There is a limit however to the amount the cardholder can borrow and said the limit is set by the issuer of the card.

Money used by debit cardholders, on the other hand, is deducted directly from the money available in their account.

Typically, there are 4 distinct categories of credit cards:

  • Standard cards – this kind is designed mainly to provide cardholders with a line of credit.
  • Charge cards – this kind of card does not have any preset spending limit. However,  carrying over unpaid balances to the succeeding month is not allowed.
  • Rewards cards – this type typically offers travel points, cash-backs, and other enticing offers to cardholders.
  • Secured credit cards – this kind will require an initial cash deposit to be used as a collateral by the card issuer.

As far as debit cards go, there are 2 that won’t require a savings or checking account:

  • Electronic benefits transfer (EBT) cards – this kind of card is issued by federal and state agencies and will allow qualifying cardholders to make purchase transactions.
  • Prepaid debit cards – this kind will give cardholders access to bank accounts that allows electronic purchases. The purchases, however, will be limited to the balance that’s available on the card.

Benefits of Using Credit and Debit Cards

Consumers who want to avoid paying exorbitant fees and charges will often prefer debit over credit cards because charges and fees are undeniably lower. By contrast, credit cards typically charge users annual fees, over-limit fees, late payment fees, and other charges and penalties on top of the interest that’s charged monthly.

In addition, those who want to earn discounts, travel points, cash rewards, and other perks often opt for credit over debit cards. As long as monthly dues are paid promptly and in full, credit cardholders can earn rewards without incurring interests.

Those who want to curb their spending are obviously better off with a debit as opposed to a credit card. Since their transactions are limited to the money that’s available on the card, there is no risk of spending beyond one’s means or racking up a massive amount of debt.

About the Author

Shamita is an international Finance specialist and author of several publications on Shares and Markets. Shamit is a regular contributor to online article sites on the topics of Business, Finance, Marketing as well as Public Administration.

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