How to choose between a credit and a debit card

How to choose between a credit and a debit card

Credit and debit cards are both helpful ways to quickly and easily make purchases in stores and when shopping online. But there are some important differences when it comes to fees, charges and rewards. The card that suits you best will depend on your financial circumstances, and you may even decide to have both for different needs.

What’s the difference between credit and debit cards?

The main difference between a credit card and a debit card is the source of the money on the card. A debit card allows you to spend your own money that is already in your bank account. This means you’re not creating any debt. A credit card allows you to essentially borrow money for instant purchases and pay this back later, a bit like a personal loan.

There are also differences when it comes to fees and interest. Debit cards are usually offered to any customer opening a bank account, and won’t include any fees. Because you’re only using your own money, you don’t pay any interest. However, when choosing a credit card, it’s important to consider the interest charges on the card, as well as fees such as an annual use fee and ATM fees.

Credit cards often come with perks such as flights, retail rewards, and complimentary travel insurance. These rewards can be really worthwhile if you’re using your card regularly. Debit cards will occasionally offer the option to earn reward points and special offers, but these aren’t typically as good as those on credit cards.

Credit cards: advantages and disadvantages

Credit cards are extremely helpful when paying for things when you don’t have the funds right away, without the hassle of applying for a loan. This may be big ticket items, like holidays or birthday gifts, or it might simply be because you are paid monthly and a credit card helps to fill in the gaps between pay days. When using a credit card, you aren’t limited by the funds in your account – only by the credit limit set on your card.

Using a credit card affects your credit history, but this isn’t necessarily a bad thing. Responsible spending will help build your reputation as a good borrower and help you to be approved for home loans and other loans later. However, if you do end up with a lot of credit card debt, this can negatively affect your credit score.

There is a risk of accumulating debt when using a credit card, so it’s important to stay on top of repayments and remember that everything you spend on the card will need to be paid off eventually.

Debit cards: advantages and disadvantages

Using a debit cards avoids the risk of debt and allows you to simply and securely make payments. Because you're not borrowing or repaying any money to the bank, there is no danger of your credit rating being affected. There are also no extra fees associated with debit cards, so you can withdraw cash from an ATM without incurring any charges.

The only disadvantage of a debit card is that you are limited by the amount of money you already have, so they’re not helpful if you want to buy a big ticket item and haven’t managed to save up enough yet. It might take you longer to accumulate the amount of money you need, but on the plus side, as long as that money is waiting in your account it is earning interest for you.