Debit Card vs. Credit Card

In a lot of ways credit cards and debit cards do the same thing. There are however some important differences between them. They both have their advantages and disadvantages so there is no best option. In fact most people should have both in their wallet.

A credit card is one that actually allows you to borrow money when you are making payments. Basically you have what is called a revolving line of credit. You have a limit that you can spend up to. Each month you can pay all or part of your balance off. You can then continue to use your card up to the limit that is set. It is important to remember that when you are using a credit card you are borrowing money. That means that you will have to pay interest on it. The interest is very high on credit cards so you do need to be careful. Credit card debt is a real problem for a lot of people because it is very easy to spend more than you can afford.

A debit card on the other hand is basically a card that allows you to spend your own money. You deposit money and then it is debited from your account every time that you use your card. This means that you can’t spend more than you have. It also means that you aren’t paying any interest when you use the card. There are however some limitations to a debit card that make it less flexible than a credit card.

The advantages of a credit card are that it can be used for things that a debit card can’t be used for. In order to do things like reserve a hotel room or rent a car you are going to have to have a credit card. This is because you are using the card as a security deposit. Basically the hotel wants to be able to charge your card if you trash a hotel room. They can’t do this with a debit card because if you don’t have the money in your account there is nothing they can do. That’s why they almost always demand a credit card. The disadvantage of a credit card is the very high interest rate and the possibility of getting into real trouble with debt.

The advantage of a debit card is just the opposite, you can’t go into debt. There is no way that you can spend money that you don’t have in your account. The disadvantage as noted above is that there are some things you can’t do with a debit card. The other big disadvantage of a debit card is that it does nothing to establish your credit. In order to borrow money for things like a mortgage you need to have a credit history. A credit card used responsibly can provide this. A debit card can’t.