What Is the Difference Between Debit and Credit Cards?

This is a question that would stumble even adults. How exactly are they different, and how do they operate. Like they say, live and learn!

Understanding the difference between a debit card and credit card allows you to make wise financial decisions. Debit cards and credit cards are accepted at the same places. Debit cards  can be used anywhere credit cards are accepted, and the reverse is the case too. They both offer convenience, but the fundamental difference between a debit card and a credit card account is where the cards pull the money.

What Is a Debit Card?

Debit cards draw money directly from your bank account when you make a purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their own bank, and the money is transferred from your bank account to the merchant’s account.

If you have observed such transactions before, maybe at Shoprite or elsewhere, this is exactly what happens.

It can take a few days for this to happen, and the hold may drop off before the transaction goes through. You will have a PIN to use with your debit card at stores or ATMs.  

What Is a Credit Card?

A credit card is a card that allows you to borrow money in small amounts. You use the card to make your basic transactions which the credit card company pays. See the difference? With a debit card, the money is removed directly from your bank account, but with a credit card, you are buying on credit as the name implies.

The credit card company then charges you interest on your purchases, though there is generally a grace period of approximately thirty days before interest is charged if you do not carry your balance over from month to month.

Debit Cards vs Credit Cards

In the past, many people felt that you needed a credit card to complete certain transactions like purchasing items online, because of safety issues, and because credit card issuers usually watch for fraudulent charges. 

They also felt that it was safer because if you detect fraud yourself, you can dispute a charge and get it reversed quickly at no financial cost to you. Also, you are never charged for transactions, unlike debit transactions.

Though debit cards offer some of the same conveniences, it’s major advantage is that you can complete transactions without borrowing money, which can easily get out of hand and leave you in great debt. 

It is better to use your debit card whenever possible, because it will prevent you from accidentally falling into the credit card trap. And financial experts will always tell you “Whenever you can pay cash for most items, you are doing better financially.“

In using debit cards, great care is needed though, to prevent your PIN from being copied and losing your money! Which is possible if you use rigged ATM machines, leave your PIN carelessly around, buy items online from unverified websites, or give your PIN to sources that are not trustworthy.

Source: about.com