Credit Cards vs Debit Cards

Debit Cards

If you have a bank account, specifically a checking account, then you probably have a bank issued debit card. These cards are very convenient as you can generally make purchases with them almost anywhere without having the chore of digging through your wallet or purse for bills and coins. Debit cards usually do not have an annual fee and gives you the ability to pay for goods and services as well as access to cash via ATMs. Using a debit card is great for people who want to keep track of their finances through their bank accounts, avoid incurring interest, and avoiding annual fees (although some checking or savings account do have maintenance fees).

Credit Cards

Credit cards are also issued by banks. Most likely the bank that you have a checking or savings account with also have credit card products. Unlike debit cards, credit cards do not pull money directly from your bank accounts when you use them. They act more like an “IOU” where the credit card issuer “loans” you the money for the goods and services you purchase. Of course, with an “IOU”, the balance must be paid by the due date or interests may start to be applied to the balance owed. Unlike debit cards, many credit cards do have a credit limit. This is how much you are allowed to spend per month based off the information you provide to the bank on your application.

Why Use Credit Cards Daily?

Credit cards allow you to earn points and miles; something debit cards do not. If you’re going to spend the money on goods or services anyways, mind as well take advantage of earning a little extra by getting back some cash back or earn points and miles for that purchase. Sure, those points or miles you get on that one purchase may not be a lot right away but they add up.

Next, credit cards allow you to build your credit. Responsible use of a credit card like paying on time shows that you can be trusted and thus builds a relationship with lenders in the form of credit scores. Debit cards do not allow you to build your credit or a relationship with a bank or lender.

Another great benefit to using a credit card is fraud and purchase protection. In my experience, credit card companies work with you when someone accesses your credit card information and make fraudulent purchases. Many of them will credit you and will allow you to hold off paying the balance of those fraudulent charges until they finish their investigation. This can act like a shield between bad actors and your bank account since the transaction is first going through your credit card.

Lastly, many credit cards have purchase protection that comes standard across all tiers of cards. These purchase protections vary but can provide you with an extended return window, can protect you when goods or services end up being falsely advertised or fraudulent, and some even cover your purchases if they get damaged or stolen within a certain time window.

Wrap Up

Credit cards are not always accepted everywhere so there is a time and place for debit cards and cash. I personally have not had to use cash in this past year and I actually do not carry any cash on me on a daily basis. If you’re going to be spending the money on goods or services, why not get something back in return?