What is the Difference Between Credit and Debit Cards?
Many people today do not understand the differences between credit cards and debit cards, let alone which type of card is better for their situation and I would like to shed some light on the topic.
Debit Cards
Debit Cards are by far one of the safest forms of card. Effectively an ordinary ATM card, a debit card is a card that may utilize the VISA or MASTERCARD facility. Chances are you have at least one debit card in your purse or wallet right now. The VISA or MASTERCARD facility attached to the card allows you to use a debit card for things such as online purchases. The money spent using debit cards comes straight out of a linked bank account or overdraft facility. This is actually very similar to writing checks, only it works much faster and can in turn be very convenient when shopping in a variety of places. There are a few cards out there that can be used as both a debit and credit card. Debit cards provide instant access to your funds and are accepted worldwide.
Debit cards act in much the same way as credit cards in that they will be swiped and a PIN will often need to be entered.
Credit Cards
Whenever you make a purchase using a credit card, you are in fact borrowing money from a bank or other financial institution. The bank will pay the vendor for whatever item or items you are purchasing and you will go into debt with the bank. By accepting the terms of a credit card you are agreeing to pay back all monies borrowed from the bank or financial institution. In addition to the money that you have borrowed you will also need to pay any interest incurred on the balance.
Although this can be a useful type of card to have when you are short on cash, you must be careful not to get in debt over your head. As of recent times, US citizens owe over $1 trillion in credit card debt.
When it comes down to it, the only big difference between the two types of cards is where the money comes from. A credit card utilizes borrowed funds while a debit card uses your own personal money from your bank account.
Depending on what you need the card for both types can be very handy to have at your disposal. However, one should always practice discipline when using his/her credit/debit card. It can be very easy to spend money with these types of cards and because of this it can also be very easy to spend too much. Spending more than you can afford with a credit card can be risky business as many people get caught with a debt that hangs around for years.
So remember, a debit card gives you access to your funds and a credit card gives you access to borrowed funds.
