What is the Difference Between Debit and Credit Cards?

Whats the difference between debit and credit cardsNaturally, when you graduate from high school and start college, it’s a good time to consider a payment card. A debit or credit card could greatly help with covering college expenses during the transition and throughout your degree. Payment cards make purchases easier, especially while ordering textbooks online or fueling up at the gas station. Each card has unique elements, like how you can build your credit through timely credit card payments or withdraw cash from any ATM. However, you need to understand how debit and credit cards work before you get carried away.

While the cards may look the same on the surface, they are inherently distinct. One of the fundamental differences between credit and debit cards is the source of the funds. Using your debit card withdraws the purchase amount directly from your checking account. When you pay with your credit card, the purchase amount is borrowed from your credit card company and must be paid back later. Keep reading to learn about the differences between debit vs. credit cards.


Debit cards and credit cards work differently

A debit card allows you to pay for things using the money in your checking account. This means that you are only able to spend the amount of money that you currently have. If you try to make a purchase that is more than the amount in your checking account, your debit card will typically be declined. However, if your account has overdraft protection, you will be able to spend more than you have in your bank account, up to a specified limit.

When you use a credit card, it allows you to pay for things with a line of credit. This means that you are using borrowed money to pay for purchases and can only spend up to your credit limit, a predetermined amount set by the card issuer. This can benefit you in times where you are between paychecks and don’t have enough money in your checking account. Each month, you’ll receive a statement listing all the purchases you made with your credit card. The amount owed will fluctuate based on how often you used your card in the last 30 days. If you pay your balance in full by the due date, you won’t be charged interest.


There are benefits of credit cards vs. debit cards

Debit cards are relatively easy to obtain and you don’t need good credit to get one. Debit cards allow you to withdraw cash in a pinch. Because the purchases you make with a debit card are immediately deducted from your bank account balance, you can accurately see how much money you have at any point. When you use your debit card, you won’t be charged interest because you are using your own money. If your card is ever lost or stolen, a debit card typically does not have the same protection from fraud as a credit card.

 A credit card also allows you to spread out your purchases over time. When your credit card bill arrives, you can choose to pay the minimum payment, the entire balance, or any amount in between. This payment flexibility allows you more time if you're low on funds one month or trying to recover from a financial emergency. Plus, if you continue to pay off your credit card purchases in a timely manner, your credit score will increase. Managing your credit cards well builds your credit history and increases your creditworthiness to lenders. More advantages of establishing good credit at a young age include better terms on loans and an increased likelihood that your rental application will be approved. Using your credit card responsibly will help you achieve a variety of benefits, like earning rewards or cash back on purchases. Lastly, credit cards offer fraud protection if your card is lost or stolen. This ensures you won’t be responsible for purchases you didn’t make.

There are different eligibility requirements

With a debit card, the eligibility requirements are straightforward; you must have a bank account. When you open a checking account, you can request a debit card that is linked to that account. Most banks require you to be 18 in order to get a debit card. However, you may be able to start using a debit card at a younger age if you open the account with a parent. 

When you apply for your first credit card, you must be at least 18 years of age. There are student credit cards that are specifically designed for those wanting to build credit at the beginning of their financial journey. Before you receive your credit card, you will have to prove you can make the required minimum payments on your own. The credit card issuer will verify your independent ability based on your income, assets, and current obligations. 


Debit and credit card fees will differ

A debit card will allow you to withdraw cash from the ATM at your bank or a network of ATM locations for free. However, when you withdraw money from other ATMs, you will usually be charged a small fee. Another common charge is an overdraft fee. Overdraft fees are applied each time your purchase is more than the amount in your bank account.

One of the most common credit card fees is an interest charge. This charge occurs when you only make a partial payment, instead of paying off the entire statement balance each month. Interest fees can be easily avoided if you pay your credit card balance in full by the monthly due date. If you pay your bill after the due date, you may be charged a late fee. In addition, some credit card issuers charge an annual fee to use their card.


How do prepaid cards work?

Paying with a prepaid card is similar to paying with cash. With a prepaid card, you can only spend the amount of money that has been loaded onto the card. Some prepaid cards even offer protection against loss or theft. On a bright note, even if your card was compromised, your losses are limited to the amount loaded onto the card.

A prepaid card is not linked to a checking account and does not involve borrowing money. You can get prepaid cards, such as general purpose reloadable cards or gift cards, at different retail locations. Each type of card may have different eligibility requirements and account terms and conditions.


It’s important to remember that no card will save you from yourself. While there are many reasons to get a credit card in college, it can lead to financial trouble if you’re not careful. While most secured or student credit cards have low credit limits, it's still easy to buy more than you realize. You could potentially find yourself paying interest on a balance that you can't afford to repay.

Debit and prepaid cards are good for students because they limit spending to how much money a student currently has.  Yet, credit cards are beneficial in college because students can start building credit at a young age. They also provide access to money in an emergency. You can use either card to track your spending and budget your money in college. Since no card can stop you from spending if you truly want to – that restraint, whenever required, must come from you.


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