Credit and Debit cards can be easy to confuse. They look the same, are accepted at the same places, and both offer the same level of convenience.

The biggest difference is where these cards get their money from. While debit cards take from an existing pool of money in your bank account, credit cards take from your line of credit.

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Debit Cards

Debit cards are simple to understand. They draw existing money from your checking account when ever you make a transaction. Debit cards have PIN numbers that help keep your card secure in the case of theft.

However, most of the time entering in your PIN isn’t necessary, it’s more common for you to be handed a receipt that asks for your signature. It’s also helpful to keep in mind that where most places accept credit cards, they will also usually accept debit cards.

Credit Cards

A credit card is a little more complex than a debit card. Instead of drawing money from a pool of existing funds, it borrows money against a line of credit, known as the cards credit limit. Unlike Debit cards, credit cards can charge interest on your pending payments if they are outstanding from month to month.

Credit card interest rates are usually high, so it’s important you don’t let your payments stack up on you. Your credit score is also affected by your credit card balance and payment history, meaning the credit cards come with much more responsibility then debit cards.

Which One Should I Use?

This can be a tough question to answer, as everyone is in different situations. Generally, if you know you have spending problems debit cards are definitely the way to go. They can help prevent you from ruining your credit score, and can also save you from over spending cash you don’t have.

One of the main advantages credit cards have over debit cards are the reward programs that credit cards come with. Using credit cards allows you to earn a bunch of different ways to save money and earn some cash back.

However, this will only work if you regularly pay off your credit card debt. If you don’t, whatever you make through rewards will have to be paid back to the interest you will gain, and can often times even lose you money if you are diligent with your payments.

Bottom Line

Debit cards and credit cards are fantastic ways to make payments. Both of them offer convenience and security. However, it’s important that you understand the differences between them. While credit cards can earn you some rewards, they require a strong willpower to not over use.

Debit cards don’t come with as much risk, but they don’t offer the same amount of rewards as credit cards. Take this into consideration when deciding on what card to get. Hopefully you found this post useful, if you wish to read more, be sure to check out HMB and see our posts on more Bank Guides as well as the best Credit card bonuses and best savings rates.