Credit vs Debit Card: Differences And Benefits

by Lalithaa

Technology continuously impacts the financial industry since consumers can pay for purchases without carrying cash. You only need a credit or debit card, and you can pay for items or dine freely as long as establishments accept them as a mode of payment.

Cards are generally safer than cash because their use is limited only to the cardholders unless you authorize someone else. However, credit and debit cards have significant differences in purpose, which this article will discuss.

The Credit Card And How It Works 

Banks issue credit cards to qualified individuals to use a line of credit for a specific amount through a credit card. It allows account holders to borrow funds to pay for goods and services, which will be paid for at a set date per month. 

Some banks will allow you to link your credit card to your Savings Accounts, which will make it easier for you to pay for your monthly dues by choosing automatic payments. This option also helps you secure better credit scores since you’ll be able to make regular payments. This will be reflected in your payment history, which can also impact your credit score.  

Credit cards are unsecured loans, which means they have higher interest rates because of the risks it poses to lenders. Unlike secured loans, credit cards don’t require collateral. For example, home buyers who take out mortgages will usually sign on to terms agreeing that the lender can repossess the house if the borrower defaults on repaying the loan. The house itself acts as the collateral.

To apply for a credit card, issuers will require your current credit score, Social Security Number (SSN), Tax Identification Number (TIN), employment status, and financial details such as your income. You must look into the interest rates before ultimately choosing a specific credit card. Remember, interest rates are around 20-25% on average, and you must be able to repay regularly to avoid penalties.

Pros Of Credit Cards 

Using a credit card can be costly due to the high interest rates, but many keep taking advantage of their uses because of the following: 

  • Convenience: Credit card holders can use it anytime and anywhere to pay for purchases, whether at a physical or a virtual establishment for products or services. 
  • Protection: You can make a dispute with the card issuer if the product or service you bought didn’t arrive or is unsatisfactory. Some credit card issuers also offer a zero-liability feature wherein you don’t have to pay for an unauthorized purchase.

Cons Of Credit Cards

Credit cards are not for everyone, especially for impulsive spenders. Avoid getting a credit card for the following:

  • Overuse: It’s easy to overuse your credit, especially when your bank balance stays the same despite the purchases you’re making. You may also be tempted to spend because the due date isn’t anywhere near.
  • Penalties For Late Payments: Overdue credit card payments can cost from USD$15 to USD$35, depending on the current balance. Thus, cardholders must pay off dues on or before the due date to avoid incurring penalties.

The Debit Card And How It Works  

Like a credit card, you can use a debit card to pay for products or services. Since the card is linked to your bank account, you can directly use your funds to pay for your transactions. Some banks or institutions will offer Debit Card Rewards for using it, such as earning one point for every USD$3 spent, and you can exchange them for gift cards and merchandise. 

However, there are two other kinds of debit cards you can use. These are: 

  • ATM Debit Card: You can use this particular card to pay for transactions and to withdraw cash. A debit card is usually issued once you open a savings or checking account. The funds in the account are automatically deducted to pay for the product or service you buy at a physical store or online shop.  
  • Prepaid Card: As its name suggests, you must load a prepaid card with money in order to use it. It’s a great way to control spending, as you can only use the amount it contains. 

Pros Of Debit Cards 

Debit card holders can enjoy the following benefits: 

  • Keep Track Of Spending. Funds are automatically deducted from your bank account, allowing you to monitor your spending. You can save more money by taking note of the prices and how much money you’ll lose from your account. 
  • No Interest. Your funds are your own, and the money is spent immediately on purchases. That’s why there is no accumulated interest to pay.  

Cons Of Debit Cards 

You will also need to understand that debit cards come with specific limitations: 

  • Limited Protection: Debit cards are granted less protection compared to credit cards. Even when you notify your bank about your stolen debit card in as little as two days, you could still be paying USD$50 for fraudulent charges. Many also don’t recommend using debit cards for online purchases.  
  • Overdraft Fees: Spending more money than what you have in your checking account could cost you overdraft fees. Banks charge around USD$35 for a single overdraft. 

Credit and debit cards have specific purposes; you can have one to help you with your finances.  


Credit and debit cards are cashless methods to help you pay for purchases. A credit card borrows funds from the bank that allow you to pay for purchases you need to repay within a specific period. Managed properly, they can help you build your credit score. 

A debit card, meanwhile, draws money from your bank account, doesn’t incur interest, and enables you to keep track of your spending. Your best bet is to learn their pros and cons to help you manage your money and spending habits. 

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