What’s The Difference Between Credit Cards and Debit Cards?

credit card vs debit card

What’s The Difference Between Credit Cards and Debit Cards?

Sometimes it can be difficult to understand the difference between credit cards and debit cards, as the two are almost identical. It can also be difficult to discern when you should use a credit card or when to use a debit card instead. The way each of the cards work is very different, and the different types of cards can have an impact on your financial health. At Pivotal Wealth, our financial experts are capable of advising you on which cards to use, and when. 

The Differences Between Credit Cards and Debit Cards

Debit and credit cards are different in the ways that they allow you to spend money. Debit cards draw from funds you have deposited in the bank, usually in a checking account. Credit cards allow you to pay for items or withdraw cash using borrowed money from the card issuer, up to a certain limit. 

What is a Credit Card?

Credit cards are cards usually issued by a financial institution, and they enable the card user to make purchases with money they will pay back later.

Credit cards come with spending limits, and all charges accrued on a debit card must be paid back, with interest. Credit cards can allow you to build a credit history, and improve your credit score, if you are making your payments in full and on time. 

There are four categories of credit cards:

  • Standard cards, which extend a line of credit to users for making purchases, balance transfers, or cash withdrawals. 
  • Rewards cards, which offer certain incentives, such as cash back or travel points, based on how much the cardholder spends. 
  • Secured credit cards, which require an initial cash deposit from the customer that is held by the card issuer as collateral.
  • Charge cards, which have no preset spending limits. However, these cards often do not allow any unpaid balances to carry over from month to month, meaning that any charges on the cards must be paid off monthly.

What is a Debit Card?

Debit cards are payment cards that draw directly from a checking account. Debit cards allow you to make purchases without taking a high interest loan every time you purchase or pay for something. Debit cards can be great for those looking for the convenience of credit cards along with the same consumer protections offered by major payment processors such as Visa or MasterCard. 

Debit cards are a good choice for anyone who is looking to avoid debt and the potential for high interest rates that often come with credit cards. Like credit cards, there are multiple types of debit cards that consumers can use. 

  • Standard debit cards, which draw from money in your checking account.
  • Prepaid debit cards give people access to the ease of a debit card and an attached bank account, with a pre-loaded amount on the card.Electronic Benefits Transfer.
  • (EBT) cards, which are issued by state and federal agencies, allowing qualified individuals to use their benefits on a card to make purchases. No checking or savings account is required for an EBT card.

Manage Your Finance with Pivotal Wealth

Both credit cards and debit cards can play a big role in building your wealth when used correctly. Let our financial experts at Pivotal Wealth assist you in learning how to grow your income, contact us today. 

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Matt Lovelady is a co-founder and managing vice president of Pivotal Wealth. He has launched multiple businesses in the financial services space and is passionate about helping people become debt-free, build their wealth, and plan effectively for their retirement.