Debit Cards vs Credit Cards: What is the Difference?

Debit cards and credit cards may look similar, but they have different functions. At a glance, debit cards can be used to draw money from an already existing checking bank account, while credit cards are more like a loan, allowing owners to borrow money within the limits of a line of credit. 

Debit Cards Pros and Cons

Debit cards are ideal for frugal people who prefer spending money they have rather than loaning money. 

  • Use a debit card if you to keep accountable for your spending. Typically, with debit cards, you cannot overdraw your account because payments are made in real-time or charged in one-two days, depending on the bank.
  • Keep the ATM fee transactions low – some ATMs charge up-to 3%, but networked ATMs and ATMs from the same bank usually offer their services free of charge. 
  • Debit cards provide some security, in that they cannot be used at an ATM or for shopping without knowing the PIN. For added protection, debit cards now also feature EMV security chips.
  • Debit cards usually don’t offer very good fraud protection. Since using a debit card deducts the money instantly from your bank account, a fraudulent charge may be hard to catch, and it may take months to recover your money after you report the issue. 
  • They usually don’t offer added benefits, like travel insurance and cash rewards. Some debit cards, however, have recently joined this trend and will offer points for shopping or travelling. 
  • Vendors prefer debit card transactions because they pay less per swipe than when customers pay with credit cards. 

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Credit Cards Pros and Cons

Credit cards offer many benefits still not available with the use of a debit card. But they also have some disadvantages that can be avoided with smart money management. 

  • Although there are different types of credit cards (some just used for an extended credit line) most offer rewards like points and even cash back for every purchase. 
  • Many credit cards offer travel insurance, lost luggage protection, collision damage waiver (CDW), airfare miles, and other travel perks. Make sure your credit card does before the journey. 
  • Most major credit cards offer purchase protection for theft, loss, or damage. Ask your credit card provider for their policies regarding this matter. 
  • Using a credit card may help you build and improve your credit history. 
  • If you are not careful, using a credit card will maximise your credit scores. To avoid this situation, pay your credit card bill by the due date.
  • It’s easy to accumulate debt if you spend more than you can afford and if you don’t exercise paying your credit card bill in full by the due date. 
  • Your interest rates for purchases may skyrocket too if you fail to pay within the credit card grace period (typically 21 days). The bank may charge you interest rates for purchases dating back to the day you made them and even for purchases going forward. 
  • Credit cards usually charge interest on balance transfers or cash advances on the day they are made. 

Credit cards have more advantages compared to debit cards. But it’s smart to consider your needs carefully before choosing one. Besides, your bank will usually provide a debit card against a small fee, or for free, when you open a bank account. With Rewire, you can instantly open a European Account or IBAN even before getting a government identification number, address, or a residency permit. Find out more about it here.

It’s up to you if you opt for a credit card too. If you travel a lot, shop online, and you need to know that you can count on a line of credit for urgent shopping or cash advance, credit cards are the best solution. Remember to manage your finances well to enjoy the full benefits of owning a credit card.