Credit Cards vs. Debit Cards

In a world where plastic is used almost as often, and sometimes more often, than paper and coins, credit and debit cards are fast replacing cash and checks as the way to purchase new items. Once reserved only for those with good credit or high incomes, credit cards are more available than ever before, and debit cards are available without any credit checks whatsoever. So what are the differences between the two, and which is the right choice for you? This article will explore some of the pros and cons of both credit and debit cards.

Overview – Credit vs. Debit

Credit cards offer flexible spending options, allowing you to purchase items or receive cash advances on credit, meaning that the credit card company, or the issuing bank, will front the money to you or the retailer, up to the amount of extended credit for which you are approved. This is great if you need to make a major purchase or have run a bit short on cash for the month and need to essentially borrow the money from yourself.

The downside is that you have to pay the money back, of course, but there is also the issue of interest. Many credit cards do offer a no interest grace period. That is, if you pay the bill in full by the due date, or sometimes within a specified period of time (i.e. 25-30 days, depending on the cardholder agreement) you will not have to pay any interest. However, if you do not pay it back within this time frame, the balance you carry on your card will accrue interest. Sometimes these interest rates can be extremely high (up to 30% for some cards.)

Debit cards, on the other hand, don’t have a flexible spending option. With a debit card, you must place money on your account, and then when you use your debit card, the amount of your purchase is deducted from your account, with no interest, and since it’s your money, you don’t have to pay it back. However, you can only spend up to the amount you have placed on your account.