Credit Card Vs. Debit Card

Credit Card Vs. Debit Card: Which One Should I Choose?

It’s a question you probably hear daily: “Credit or debit?” However, when it comes to choosing a card, it’s hard to decide. Both credit and debit cards have their benefits, but they’re not always equal. Knowing how each works and the differences between the two may help make your choice a little easier. Understand the pros and cons of credit and debit in the guide below. Then decide which card is right for you.

Credit Cards

Credit cards effectively allow you to “borrow” funds from a card issuer up to a predetermined limit. Each merchant transaction that occurs places a charge on your line of credit. While this doesn’t affect your funds immediately, it does issue a debt that you will eventually have to pay back later. Paying your bill in full and on time is key. It’s when you carry a balance from month to month or miss a payment that you’ll begin to incur fees and interest. This is typically the danger associated with overspending on credit cards. However, using your card can be convenient, especially when you don’t have cash. Here are a few other key pros and cons of credit cards to consider:

Pros:

• Enhanced security and protection
• Reward programs and legal coverage
• Opportunity to establish credit history

Cons: 

• Risk of overspending
• High interest charges
• Potential fees and penalties

Debit Cards

In contrast, debit cards pull funds directly from your banking account after a merchant transaction occurs. When you swipe your card, a hold is placed on your account for the balance owed until the transaction is reported to the bank, at which time funds are transferred to the merchant's account. This means that debit cards can typically only be used to pull from funds that exist in your bank account. Any more will typically result in a card decline or overdraft fee. Unlike credit cards, debit cards do not incur interest because they do not carry a debt balance. This is especially beneficial for individuals who may have a harder time controlling their spending. Additional pros and cons to consider include:

Pros:

• No interest and fewer fees
• No monthly bills
• Controlled spending

Cons:

• Overdraft fees
• Increased loss and fraud liability
• Does not establish credit history

Credit or Debit?

Still unsure if a credit or debit card is the right choice? Typically, debit cards are better for individuals seeking to control their spending and curb impulse purchases. If you are looking to avoid potential debt traps and paying interest or fees, debit is probably better. However, if you consider yourself a smart shopper and capable of sticking to a budget, you may want to consider credit. Not only will you have the opportunity to build your credit score, but you’ll also be able to take advantage of the many benefits and rewards that credit cards typically offer. Just remember to keep an eye on spending and always pay your bills in full and on time.