DEBIT CARDS VS. CREDIT CARDS: WHICH IS THE BEST FOR YOU?
First, what’s the difference?
Debit and credit cards are fantastic financial tools that make it convenient to spend money online and in-store without needing cash or checks on hand. The key distinction between them is where the funds actually come from.
When you pay with your debit card, that money is withdrawn directly from your checking account at the time of purchase. A credit card, on the other hand, allows you to borrow money from a creditor up to a certain amount and pay the bill at a later date.
It may be difficult to decide which card is the best for you but when used correctly, these are both great tools to have in your wallet. To get a deeper understanding of each card’s capabilities, let’s dive into the advantages and disadvantages of both.
Advantages of Debit Cards
Avoid the accumulation of debt. A debit card draws funds directly from your checking account, therefore you are paying with money you already have. Without the ability to borrow money, you have no chance of going into debt with purchases made on this card.
Easy access to your cash. Since the debit card is directly tied to your checking account, you are able to easily remove your funds from ATMs or stores that offer cash back.
Few fees. Debit cards do not have an annual fee or a fee for withdrawing money from your bank’s ATM, although you may have to pay overdraft fees.
Disadvantages of Debit Cards
Won’t help build your credit. Since debit cards don’t rely on borrowing money from a creditor, you aren’t demonstrating that you can responsibly borrow money and repay it. Any activity with your debit card will not show up on your credit report, therefore it can not help increase or decrease it.
Few perks or rewards. Unless you have a specific rewards debit card, you won’t earn cash back, points, miles, or other rewards when you make purchases. You can miss out on some great benefits if you make all your purchases on a debit card.
Advantages of Credit Cards
Build your credit history. Your ability - or inability -to pay your credit card balance is included in your credit report. Paying off your statement in full each month shows that you can responsibly borrow and pay back money, which is a great way to build your credit.
Access rewards. Credit cards offer a variety of rewards, from miles and points to cashback in certain spending categories. Do your research before opening a credit card and choose one that provides the greatest benefits for you.
Spend now, pay later. It can be comforting to know you have access to funds that may not be readily available in your bank account, especially in the event of an emergency.
Disadvantages of Credit Cards
Credit card debt. Credit cards are a great financial tool when used responsibly, but they can also get us in a lot of trouble. Be smart with your credit card purchases and always have a plan to pay them off. Pay your statement in full each month to avoid crippling interest rates that create a snowball effect of credit card debt.
Interest and Fees. Most credit cards require an annual fee, which varies for each credit card. It can range from $95 to well over $500, depending on the credit limit and the benefits it offers. Additionally, you are subject to late fees if you fail to pay your minimum payment and incredibly high interest rates on any outstanding debt.
Having a Debit and Credit Card
Most people have both a debit and credit card in their wallet. How come? Well, debit and credit cards have their own unique set of advantages and disadvantages, and utilizing them in different ways is a powerful way to make the most of your purchases.
For everyday purchases, utilizing a debit card that takes money straight from your bank account might be the easier option. For larger purchases such as flights or appliances, putting them on your credit card gives you time to save up the money before having to pay them off.
If there are certain spending categories that offer rewards on your credit card, like travel, dining, or entertainment, you may want to put those purchases on your credit card to fully utilize those benefits and use your debit card for any other purchases.
There is no one best option when it comes to debit and credit cards, it is different for each individual situation. Take the time to do some research on different debit and credit cards and find which ones that make the most sense for you.
