If you’re new to personal finances, you may not know much about the differences between debit and credit cards. On the surface, they seem like the same thing. They’re both little plastic cards that you can use to buy stuff.
In reality, however, several differences exist between the two options. The question between debit cards vs. credit cards is one that you should understand before getting either card. Fortunately, we’ve got the information you need.
If you want to learn more about debit cards vs. credit cards, you’re in the right place! Check out our guide to get the answers you need.
Debit Cards
A debit card is a method used for payment as an alternative to carrying cash. Debit cards come in two primary types: bank debit cards and prepaid cards. A bank debit card is a card you receive when you open a checking account with that bank.
The debit card links to your account, allowing you to use it when buying new goods. The card immediately deducts the cost from the amount of money you have in your bank account. Learn more about the best debit card options today.
In contrast to bank cards are prepaid cards. These cards don’t connect to a bank account. Instead, you pay a certain amount for the card and use it for transactions. When the balance gets low, you can add more money to the card.
Credit Cards
A credit card uses a line of credit that allows them to borrow money to make purchases. Several credit cards allow you to use cash advances or perform balance transfers. When you use the card, you assent to repay the issuing company the amount that you borrow.
The other crucial fact about credit cards is their interest rates. The average interest rate for a credit card is about 18%, though exceptions exist in either extreme.
As this accrues, your payments will rise. So, if you use a credit card, ensure you stay on top of your payments to prevent interest from accruing rapidly.
Debit Cards vs. Credit Cards
Most people have debit cards and credit cards. The question is, when is it best to use your credit card or debit card for a purchase. As a general rule, using credit cards is best for making large purchases.
However, credit cards also help build your credit score. If your goal is to establish a robust and sturdy credit score, frequent use of credit cards can be a way to accomplish that. If you go this route, remember to monitor your payments to prevent crippling interest from building.
So, when should you use a debit card? Debit cards are helpful tools for people who worry about overspending. Since the card ties to your bank account, you shouldn’t spend more than you have.
Decide Which is Best For You
The choice of debit cards vs. credit cards is one people make daily. When you’re unsure which card to use, assess which one will best further your financial and budgeting goals.
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