Debit Card Vs Credit Card : 9 Differences (With Table)

In today’s world, plastic money is gradually replacing physical cash. Among the various types of plastic money available, debit cards and credit cards are the most commonly used ones. While both serve as a means of electronic payment, there are significant differences between them. This article aims to highlight the differences between debit cards and credit cards, along with their types, advantages, and disadvantages. So let’s first have a look at a table comparing both debit card vs credit card in a sequential manner.

Debit Card Vs Credit Card

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What is a Debit Card?

A debit card is a plastic card linked to the user’s bank account. It enables the user to access funds from their bank account and make payments electronically. Debit cards are widely accepted and can be used to withdraw cash from ATMs and make purchases at stores or online.

In more simple words we can say a debit card is a plastic payment card that allows you to access your own money in a checking or savings account. When you use a debit card to make a purchase, the funds are immediately deducted from your account. Debit cards are usually provided by a bank or financial institution, and they can be used to withdraw cash at ATMs or make purchases at retailers that accept them.

Types of Debit Cards

There are four types of debit cards:

• Standard Debit Card – This is the most common type of debit card. It allows the user to withdraw cash from ATMs and make purchases using a PIN.

• EBT stands for Electronic Benefits Transfer, and an EBT debit card is a plastic payment card used to access government assistance benefits such as SNAP (Supplemental Nutrition Assistance Program), TANF (Temporary Assistance for Needy Families), and WIC (Women, Infants, and Children) benefits. EBT cards work like regular debit cards and can be used at authorized retailers to purchase eligible food items and other household necessities.

• Prepaid Debit Card – These cards are loaded with a predetermined amount of money, and the user can only spend up to that limit. They are usually not linked to a bank account.

• Virtual Debit Card – This type of card is exclusively designed for online purchases. It is not a physical card but has a unique card number and security code that can be used for online transactions.

• Contactless Debit Card – This type of card uses near-field communication (NFC) technology to enable contactless payments. The user can simply tap the card on the payment terminal to make a payment.

Pros of Debit Cards

• No Debt Accumulation – Since the user is spending their own money, there is no risk of accumulating debt.

• Easy Access to Funds – Debit cards allow easy access to funds, and there is no need to carry cash.

• No Interest Charges – Debit cards do not charge interest on purchases or cash withdrawals.

• Control Over Spending – Debit cards enable the user to monitor their spending and stay within their budget.

Cons of Debit Cards

• No Credit Score Improvement – Since there is no borrowing involved, debit card usage does not improve the user’s credit score.

• Limited Protection Against Fraud – While banks usually provide some protection against fraudulent transactions, the liability may fall on the user if they fail to report the fraud in time.

• Limited Reward Programs – Debit cards usually offer fewer rewards and benefits than credit cards.

• Limited Acceptance – Some merchants may not accept debit cards or may charge additional fees for their usage.

What is a Credit Card?

A credit card is a plastic card issued by a bank or financial institution that allows the user to borrow money for purchases or cash withdrawals. The user is required to pay back the borrowed amount along with interest and other charges within a specified time.

In more simple words we can say that a credit card is a plastic payment card that allows you to borrow money from a credit card company to make purchases. When you use a credit card to make a purchase, the card issuer pays the retailer on your behalf, and you then owe the credit card company the amount of the purchase plus interest and any other fees that may apply. Unlike a debit card, using a credit card means you are borrowing money that you will need to repay with interest.

Types of Credit Cards

There are four types of credit cards:

• Standard Credit Card – This is the most common type of credit card. It offers a revolving line of credit that allows the user to borrow money up to a certain limit and pay it back over time.

• Balance Transfer Credit Card – This type of card allows the user to transfer their existing credit card balance to another card with a lower interest rate.

• Rewards Credit Card – These cards offer reward points or cashback on purchases. The user can redeem the rewards for various benefits like travel, shopping, or cash back.

• Secured Credit Card – This type of card is secured by collateral, such as a savings account or a fixed deposit. It is usually offered to users with a low credit score or no credit history.

Pros of Credit Cards

• Credit Score Improvement – Proper usage of credit cards can help improve the user’s credit score.

• Cashback and Reward Programs – Credit cards offer various reward programs, cashback, and other benefits that can save user money on their purchases.

• Purchase Protection – Credit cards offer protection against fraudulent transactions, and users can dispute charges if necessary.

• Emergency Funding – Credit cards can provide emergency funding for unexpected expenses or emergencies.

Cons of Credit Cards

• High-Interest Rates – Credit cards charge high-interest rates on unpaid balances, which can lead to a debt cycle if not managed properly.

• Late Payment Fees – Credit card companies charge late payment fees if the user fails to make payments on time.

• Debt Accumulation – Credit card usage can lead to debt accumulation if not managed properly.

• Overspending – Credit cards can lead to overspending since the user can borrow money up to a certain limit.

Key Differences Between Debit Card and Credit Card

While comparing debit vs credit card, here we have included some of the key differences between them as well. They are as follows.

• How They Work: Debit cards are linked to your bank account and allow you to spend money that you already have in the account. Credit cards, on the other hand, allow you to borrow money from the issuer to make a purchase, which you will need to pay back with interest.

• Fees: Debit cards usually have fewer fees associated with them than credit cards. Debit cards typically don’t charge interest, but there may be fees for using an out-of-network ATM or overdrawing your account. Credit cards often have higher fees, including interest, annual fees, balance transfer fees, cash advance fees, and late payment fees.

• Rewards: Credit cards often offer rewards programs that give you points, miles, or cash back for using the card to make purchases. Debit cards may also offer rewards, but they are typically less generous than credit card rewards.

• Credit Score: Using a credit card responsibly can help you build your credit score, while using a debit card does not affect your credit score at all.

• Spending Limit: Debit cards are limited to the amount of money you have in your bank account, while credit cards often have a higher spending limit that is determined by your creditworthiness and credit limit set by the issuer.

Conclusion

So, in conclusion, debit cards and credit cards are both widely used for electronic payments, but they have significant differences. Debit cards are linked to the user’s bank account and enable them to access their own funds, while credit cards allow the user to borrow money and pay it back with interest. Both have their advantages and disadvantages, and users should choose the one that suits their financial needs and goals. It is essential to manage debit and credit card usage carefully to avoid debt accumulation and maintain a good credit score.