Have you ever been stuck on whether to choose a credit card or a debit card? They might look the same, but they work in completely different ways. While paying for a meal, shopping online, or withdrawing cash, knowing how both cards work will help you to make smart decisions about your money.

Let's have a quick credit card vs debit card comparison. A debit card will take your funds directly from your bank account. When you swipe the card, money gets deducted instantly. On the other hand, a credit card lets you borrow money from a bank which you can pay back later. But extra fees called interest will be included if you don’t pay it on time. Each of these cards has its benefits and risks, so you need to understand both of them carefully which will save you from financial headaches.

In this blog, we’ll explain the differences between credit card and debit card, their advantages, and benefits of having one. Here's everything you need to know about which cards best suit your spending habits. Let's get started!

What are Credit Cards and Debit Cards?

Both credit card and debit card are termed as “plastic money” and “financial instruments” that are complete alternative of cash. Both cards are used to pay for products and services without writing a cheque or paying in cash. 

With increasing benefits of reward points, cashbacks, easy handling, and safe transactions, credit card and debit card have become the most favourable way of handling your money. Now let’s understand how credit cards and debit cards work.

1. How Credit Card Works?

Credit card works by borrowing funds from a bank or credit card company to make purchases. To pay the borrowed amount, you get a time period of around 45 days without any interest charge on the billed amount. After buying a credit card, you get a credit limit which shows the maximum amount that you can spend while using your credit card.

2. How Debit Card Works?

Debit card works by spending only the amount of money that is available which instantly gets deducted from your bank account. This is a safer option for those people who want to avoid debts. Debit cards are used for day-to-day transactions like grocery shopping with no risk of paying interest.

Types of Credit Cards and Debit Cards

Here is the list of different types of cards that provide different features:

Types of Credit Cards

• Standard credit cards are for users to balance transfers. They don’t charge any membership fee for the year.

• Balance transfer credit cards offer zero-percent interest and charge low fees while transfering balances from other credit cards.

• Elite credit cards provides special features like lounge access but may demand higher annual fees.

• Foreclosure credit cards requires some initial money deposit so that it can acts as a guarantee for the issuance of your credit card

Types of Debit Cards

• Standard debit cards are simple cards that are issued after opening an account and can be used for cash withdrawals.

• Prepaid debit cards are for those who are not bank account users but want to buy goods online. With these cards it’s possible to spend only the amount that they’ve loaded onto the card. 

What’s the Difference Between Credit Card and Debit Card?

It can get complicated while deciding when it is best time to use each card. For everyday transactions, use your debit card because the money will be taken out immediately from your current or savings account. If you don’t have enough money to cover the transaction, your card will be declined 

While using a credit card, the amount will be charged to your bank which means that you can pay at a later date. You can use credit card while buying expensive things like booking a hotel room or a car. This will give you more time to save up your money and pay.

Credit Card Vs Debit Card: A Comparison

Since both credit card and debit card look identical, there are lot of features that make them different. Let’s see what are those features that make a credit card and debit card different from each other. 

Advantages of a Debit Card

If you don’t have enough cash available in your wallet, then your debit card will have several advantages for you:

• Debit card allows debt-free transactions. Since your money will be directly deducted from your bank account, there will be no borrowing involved. This will let you spend only what you have in your account.

• There are no interest charges on your everyday transactions, making debit card an affordable option as compared to credit card.

• Getting a debit card is an easy process. Debit card is issued as long as you have a savings or current account with a bank, making it easier and quicker to obtain.

• Debit card also work in ATMs which provides an easy access to obtain cash. You can withdraw cash from your account through any ATM which makes it highly convenient for everyday needs.

Advantages of a Credit Card

There are many advantages to using a credit card, as it offers convenience and flexibility for large expenses.

• Just like debit card, credit card will also allow you to make cashless transactions both in-store and online. Payments with credit card will eliminate the need to carry cash in your wallet.

• By using credit card responsibly you can improve your credit score. Timely payments will show the bank that you are a reliable borrower, which will improve your creditworthiness.

• Credit card also offers rewards program such as exclusive discounts and cashback. These rewards are redeemable on next transactions and timely payments.

• Credit card will allow you to make flexible payments even if you don’t have enough funds available in your account. This flexibility means that you can manage larger expenses with the option to pay later.

Benefits of Having a Credit Card and Debit Card

Instead of choosing between credit card and debit card, why not consider getting both. Many people have both a credit card and debit card because each card has their different uses.

Credit cards is convenient and very useful when there is any emergency. If you suddenly in need to pay for your house repairs, or have any medical emergency in your family, you can use your credit card for immediate payment. With this you can get the extra time to save up the money and pay all the amount at the end of the month.

Now using debit card instead of a credit card is a good way to decrease the chances of getting into debt. Payment with debit card will keep you under your budget. Since money from your debit card purchase is taken immediately out of your account, you don’t have to worry about the bill at the end of the month. Also you can use your debit card to withdraw your cash from ATM at anytime.

Therefore, both credit card and debit card offer unique benefits as per to different people’s financial needs. While a credit card offers rewards and flexibility with opportunity to build credit, debit card ensures that you spend in limit of your budget and avoid debts.

FAQ's

Q1. How can I tell if my card is a Debit or credit card?

You can check your card if it is debit or credit by checking the front and top of the card. Debit card have the word “Debit” printed on them and they are linked directly to your bank account. While Credit card have the word “Credit” on them and they are issued by banks or credit card companies.

Q2. Is an ATM card a Debit or a Credit card?

Debit card are considered as ATM card because it is linked directly to your bank account which allow you to withdraw money or check balance at ATMs. But credit card will not work as ATM card unless they also function as a debit card with payment features.

Q3. Credit card vs Debit card - Which is better?

Both credit card and debit card are better depending on your financial needs. Credit card is better for earning rewards or need flexible payment for purchases over time. Debit card is better for daily expenses sticking to budget since it deducts money directly from your bank account.

Q4. Do debit cards and credit cards have similar features?

Yes both debit cards and credit cards share some similar features like purchasing from online store or in-store. However, debit cards deducts money immediately from your account while credit cards allow borrowing within a set limit.

Q5. Can I apply for credit card and debit card from the same bank?

Yes you can apply for both credit card and debit card from the same bank but many banks offer the best options. You can choose and apply for cards that best fits as per your financial needs. Simply visit the bank or apply online at home to get started.

Q6. Credit card vs Debit card - which is safer to use?

Credit cards are much safer than debit cards as they offer better protection from frauds. If unauthorized charges occur on your credit card it will typically liable for only small amount. While in debit cards, all your money could get deducted instantly from your bank account.