Credit cards and debit cards typically look almost identical, with 16-digit card numbers, expiration dates, and personal identification number (PIN) codes. But that is where the similarity ends.

Debit cards allow bank customers to spend money by drawing on funds they have deposited at the bank. Credit cards allow consumers to borrow money from the card issuer up to a certain limit in order to purchase items or withdraw cash.

You probably have at least one credit card and one debit card in your wallet. The convenience and protection they offer are hard to beat, but they have important differences that could substantially affect your pocketbook.

This article will show you how to choose which to use when you need to swipe the plastic. Here are the main points.

• What is a Credit Card
• What is a Debit Card
• Debit Cards vs. Credit Cards
• Debit Card vs. Credit Card: An Example
• Differences Between Credit Cards And Debit Cards
• Advantages And Disadvantages of a Credit Card
• Advantages And Disadvantages of a Debit Card
• Credit Cards vs Debit Cards: Which is Better
• Can a Debit Card be Used as a Credit Card?
• Are Credit Cards More Harmful Than Debit Cards?
• More Advantages on Credit Cards
• Do Debit Cards Have Any Other Advantages?
• Debit Cards vs Credit Cards: Which Should You Use Abroad
• Visa or Mastercard: Which Should You Choose
• How to choose the best international debit card for you
• What happens when you use your debit card overseas

What is a Credit Card

A credit card is a card issued by a financial institution, typically a bank, and it enables the cardholder to borrow funds from that institution. Cardholders agree to pay the money back, with interest, according to the institution’s terms.

Credit cards are issued in four categories: 

• Standard cards simply extend a line of credit to their users.
• Rewards cards offer cash back, travel points, or other benefits to customers.
• Secured credit cards require an initial cash deposit that is held by the issuer as collateral.
• Charge cards have no preset spending limit, but often do not allow unpaid balances to carry over from month to month.

Credit card users can reap cash, discounts, travel points, and many other perks unavailable to debit card holders by using rewards cards. Consumers who pay off their cards in full and on time every month can profit substantially by running their monthly purchases and bills through rewards cards.

Credit card use is also reflected on a consumer’s credit report, which allows responsible spenders to raise their scores with a history of expenditures and timely payments.

These cards may also provide additional warranties or insurance for items purchased—above those the retailer or brand is offering.

If an item bought with a credit card becomes defective after the manufacturer’s warranty has expired, for example, it is worth checking with the credit card company to see if it will provide coverage

Credit cards still offer much greater protection than debit cards in most cases. As long as the customer reports the loss or theft in a timely manner, their maximum liability for purchases made after the card disappeared is $50.

The Electronic Fund Transfer Act gives debit card customers the same protection from loss or theft—but only if the customer reports it within 48 hours of discovery. After 48 hours, the card user’s liability rises to $500; after 60 days, there is no limit.

The Fair Credit Billing Act allows credit card users to dispute unauthorized purchases or purchases of goods that are damaged or lost during shipping. But if the item was bought with a debit card, it cannot be reversed unless the merchant is willing to do so.

What is more, debit card theft victims do not get their refund until an investigation has been completed. Credit card holders, on the other hand, are not assessed the disputed charges; the amount is usually deducted immediately and restored only if the dispute is withdrawn or settled in the merchant’s favor.

While some credit and debit card providers offer zero-liability protection to their customers, the law is much more forgiving for credit card holders.

If you need to rent a car, many credit cards provide some sort of waiver for collisions. Even if you want to use a debit card, many car rental agencies require customers to provide credit card information as a backup.

The only way out for a customer may be allowing the rental agency to put a hold of perhaps a few hundred dollars on a bank account debit card as a form of surety deposit.

What is a Debit Card

A debit card is a payment card that makes payment by deducting money directly from a consumer’s checking account, rather than via loan from a bank.

Debit cards offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard.

There are also two types of debit cards that do not require the customer to have a checking or savings account, as well as one standard type:

• Standard debit cards draw on your bank account.
• Electronic Benefits Transfer (EBT) cards are issued by state and federal agencies to allow qualifying users to use their benefits to make purchases.
• Prepaid debit cards give people without access to a bank account a way to make electronic purchases up to the amount that was pre-loaded on the card.

Frugal consumers may prefer to use debit cards because there usually are few or no associated fees unless users spend more than they have in their account and incur an overdraft fee. (The no-fee advantage does not hold for prepaid debit cards, which frequently charge activation and usage fees, among other costs.)

By contrast, credit cards generally charge annual fees, over-limit fees, late-payment fees, and a plethora of other penalties, in addition to monthly interest on the card’s outstanding balance.

A debit card draws on money the user already has, eliminating the danger of racking up debt. Retailers know people usually spend more when using plastic than if they were paying cash. 

By using debit cards, impulsive spenders can avoid the temptation of credit. Many of the user benefits offered by credit card companies are funded by the interest and other charges of those who do not pay off their balances each month.

In addition, some debit cards—particularly those issued by payment processors, such as Visa or MasterCard—are starting to offer more of the protections enjoyed by credit card users.

Debit Cards vs. Credit Cards

Debit cards make it more difficult to overspend since you’re limited to only the amount available in your checking account.

With a credit card, you run the risk of spending beyond your means. Just because your credit limit is $1,000 doesn’t mean you can afford that sort of spending in your monthly budget.

Plus, debit cards offer the same convenience as credit without requiring you to borrow money or pay interest or fees on your purchases. Choosing debit is great for managing your money and helping you live within your means.

On the other hand, some credit cards offer additional insurance on purchases and can make it easier to request a refund or a return. However, many companies are reducing or withdrawing these benefits.

Finally, credit cards can help cover you in an emergency, giving you a month to come up with the cash before the bill comes due.

This safety net could be helpful if you find yourself needing to pay for something big before a check comes in but beware: depending on credit for emergency spending sets you up for expensive interest if you can’t pay in full by the due date. A better solution is to keep an emergency fund on hand.

Debit Card vs. Credit Card: An Example

Consider two customers who each purchase a television from a local electronics store at a price of $300. One uses a standard debit card, and the other uses a credit card.

The debit card customer swipes his card, and his bank immediately places a $300 hold on his account, effectively earmarking that money for the television purchase and preventing him from spending it on something else. Over the next one to three days, the store sends the transaction details to the bank, which electronically transfers the funds to the store.

The other customer uses a traditional credit card. When he swipes it, the credit card company automatically adds the purchase price to his card account’s outstanding balance. He has until his next billing due date to reimburse the company, by paying some or all of the amount shown on his statement

Differences Between Credit Cards And Debit Cards

Let’s take a closer look at the differences between credit cards and debit cards.

Parameters	Debit Card	Credit Card
Definition	Deducts money directly from your saving’s bank account or your current account.	Allows you to borrow funds to pay for goods and services.
Source of funds	Your savings bank account or current account.	Credit extended to you by your card issuer. It gives you access to money you otherwise do not have (like a very short-term loan).
Spending advantage	You can only spend how much you have.	Can spend more than what you have.
Who pays for the purchase	You pay for your purchase.	The credit card company pays the vendor for your purchase. You pay the credit card company.
Bill	There is no bill or statement	You get a bill or statement each month with details of the transactions you have made.
Payment	There is no payment that needs to be made since you are using your own money.	A bill needs to be paid each month since it is being borrowed.
Fees and charges	Annual fees and PIN regeneration fees are applicable.	Credit cards have multiple fees applicable. These include joining fees, annual fees, late payment fees, and bounced cheque fees among others.
Interest	There is no interest that is charged.	Interest is charged on the outstanding amount if it hasn’t been paid by the due date.
Limit to funds that can be accessed	You can access any amount up to what is currently available in your savings bank or current account.	You can use the card only up to the pre-set credit limit on your card.
Rewards	Typically, the rewards you get are minimal	Get to enjoy cashback, air miles, and reward points which can be redeemed.
Privileges	Doesn’t come with many privileges.	Come with numerous dining, retail, entertainment, and travel privileges (depending on the type of card you have).
Lost card liability	Protection from theft or loss of the card is minimal.	Most cards offer 100% lost liability protection. So, you are not liable for any unauthorised transactions made.

Advantages And Disadvantages of a Credit Card

Pros

• Credit cards are extremely convenient and prevent you from having to carry cash with you.
• Credit cards help you build your credit score.
• The rewards you earn are much higher than those on debit cards.
• They provide you with flexibility when it comes to spending since they come with relatively high credit limits.

Cons

• If you don’t pay your bills on time or in full, you are charged a high rate of interest.
• Credit cards have multiple fees.
• Missing a payment (even due to genuine reasons) could end up adversely affecting your credit score. You then must work much harder to build it.
• While there is a credit limit, you could always be tempted to spend more than what you have. This leads to debt.

Advantages And Disadvantages of a Debit Card

Pros

• There is no debt involved since you are using your own money.
• It is cheaper to use since there are no interest charges involved.
• Serves as an ATM card as well, so you can use it to withdraw money from an ATM.
• Approval for a debit card is easier and faster.
• Doesn’t help build a credit history.

Cons

• You don’t have the ability to leave disposable cash in your account since money is directly debited.
• It can complicate balancing your passbook at the end of the month if you don’t keep track of your spending.
• You may be charged a fee if you withdraw money from a different bank ATM.
• There is very little protection when it comes to debit card fraud.

Credit Cards vs Debit Cards: Which is Better

As you can see, credit cards and debit cards come with their own advantages and disadvantages.

However, here are some of the instances where you can choose to use a credit card, or a debit based on their pros and cons.

• If you have spending issues: Debit card. It goes without saying that if you can’t control how much you spend, to use a debit card. Since the money is going from your savings or current account, you are less likely to overspend and get into credit card debt.
• Withdraw cash: Debit card. When you withdraw money using your debit card, you are gaining access to your own money, so there is no expense involved. However, if you use your credit card to withdraw money, you are withdrawing the money you don’t have. The bank will consider this as a type of loan which you will have to pay back with a high rate of interest.
• Shopping or making transactions online: Credit card. Credit cards are your safest option while shopping online. If you detect fraud, you can always call your bank and block your card. Moreover, getting an amount reversed to your credit card is far easier than with a debit card.
• To make a big-ticket purchase: Credit card. Credit cards offer you the convenience of being able to split transactions into EMIs. This makes it a good option to make big-ticket purchases since they become more affordable.
• For a vacation: Credit card. Most credit cards are universally accepted. So, you can use a credit card when you are overseas and not have to worry about having foreign currency in hand. Do, however, keep in mind that when you swipe your card overseas, you will be charged a foreign currency mark-up fee.

Even though there are many similarities between a debit and credit cards, there are many differences as well. Hence it is advised to research adequately and based on your short-term and long-term requirement, choose between the two.

Can a Debit Card be Used as a Credit Card?

If you’re paying for something online, you can typically use your debit card just like a credit card. You don’t need to specify that you want to use a debit card (just select the “pay with credit card” option).

Start by indicating the type of card you have—Visa or MasterCard, for example. Then, type in the 16-digit number on the front of your debit card. You usually also have to enter the expiration date, which you can find after the words “good through” or “valid through.”

You may also need to provide a CCD, CVV, or similar security code. Those three- or four-digit codes help to prove that you are authorized to use the card.

Those codes can be found on the back of most cards toward the far right (often printed on the card in black ink after your card number). On American Express cards, the code is on the front of the card (again, in black ink on the far right).

Are Credit Cards More Harmful Than Debit Cards?

Credit cards are not harmful than debit cards. In fact they can be life saver sometimes. Think of any emergency, when you don’t have sufficient amount in your account, how will you pay if you don’t have the credit card.

Credit cards are issued to anyone only after considering his or her eligible so ideally if someone is spending within his or her credit limit should be able to manage the expenses. Credit card are meant for the smart users if you use them wisely they can be very useful.

Instead of carrying too much cash with you just carry a credit card and do you r shopping. It is upto a person that how he or she manages their expenses.

I would not support the case of overspending, it is true that with credit card a person can do overspend and come into trouble but without credit card also the same person can also take a loan and spend unwisely. So it depends how you use your card credit card is not harmful.

More Advantages on Credit Cards

Build Credit History

Though credit cards sometimes get a bad rap, they’re actually one of the best ways to build healthy credit.

When you get a credit card, its use is usually reported to the major credit bureaus — TransUnion, Equifax, and Experian — and therefore shows up on your credit reports.

Using your credit cards responsibly will help you build a solid credit history and improve your credit scores. That’s in stark opposition to debit cards, which don’t affect your credit history at all.

Why does that matter? Life is more challenging when you haven’t established enough credit history: You may not be able to rent an apartment or get a cell phone plan, and you may have to put down a deposit when signing up for utilities or internet.

A solid credit history and good credit scores can also help you get better terms on car loans and mortgages, and can sometimes even help you land a job.

If you want to establish credit for the first time — or want to rebuild your credit — credit cards are much more powerful than debit cards.

Manage Fraud Better

Should you be more concerned about losing your debit card or losing your credit card? The former, and here’s why.

When criminals fraudulently use your credit card, they’re spending your credit card issuer’s money.

When criminals fraudulently use your debit card, they’re spending money from your checking account.

In other words, if someone uses your credit card without your permission, you’ll have time to report and manage the fraud before your bill is due.

With a debit card, however, the money leaves your account immediately — whether the charge is fraudulent or not. And, depending on your bank, it might take weeks or months to get your money back. In the meantime, you could miss important bill payments or have to borrow money for daily expenditures.

And, whether you’re victim to credit card fraud or debit card identity theft, federal law dictates your level of liability.

The Fair Credit Billing Act (FCBA) caps the liability of credit card users at $50. Most credit card issuers take this a step further and don’t charge cardholders anything for fraudulent charges. But even if your card issuer doesn’t offer that protection, the FCBA says you’re not responsible for anyunauthorized charges if you report the card lost before it’s used.

This limited liability is one of the main reasons experts recommend using credit cards  — especially for online purchases.

Debit card fraud protection, on the other hand, is covered by the Electronic Funds Transfer Act (EFTA) — and protection varies.

Here’s what you could owe, based on when you report a debit card loss:

• Before any unauthorized purchases are made: $0
• Within two business days of learning about the loss: up to $50
• More than two days after the loss: $500
• More than 60 days from when your statement is sent: the entire amount

I don’t know about you, but I’ve certainly gone a few days before noticing a card was missing from my wallet. And if you’re ever in the same boat, you’d face exponentially more liability with a debit card than a credit card.

Earn Rewards

If you already go to Starbucks for your daily latte, you might as well earn some rewards on the money you’re spending.

Here are the most common credit card rewards you can earn:

• Cash back: Get a percentage (usually 1-5%) of each purchase back as a statement credit — which is like getting a small discount on everything you buy.
• Points or miles: Earn points or miles on every purchase you make, and then redeem them for flights, hotel stays, or statement credits.

Additionally, many credit cards come with a sign-up bonus in the form of cash (like a $200 statement credit) or extra points (like 50,000 bonus points). To attain these bonuses, you usually must spend a certain amount of money after opening the card. For example, a card might give you 50,000 bonus points after spending $3,000 on the card in the first three months.

If you don’t have a strong credit history, you might not be able to get a rewards card right away — but as you build your credit, you’ll probably qualify for more and more.

Take Advantage of “Free” Short-Term Financing

When you use a debit card, the purchase is deducted from your checking account within a few days.

In other words, you could get an interest-free loan for the period between making a purchase and paying your bill (usually at least a month).

When you use a credit card, you get a “grace period”; you don’t pay for a purchase until your billing cycle ends and your statement balance is due. And with most credit cards, you’ll avoid interest completely if you pay your bill in full.

Travel Without Worry

When you’re on the road, debit cards can be problematic.

Many hotels, gas stations, and rental car companies place “holds” on customer cards that claim an amount of money until the final cost becomes apparent.

Let’s say you’re checking into a hotel for five days. If the hotel charges $200 per night, the hotel will likely place a hold on $1,000, plus extra money for incidentals.

If you’re using a debit card, that money will be frozen until you check out — and that’s even if the company accepts it (many require credit cards).

Not exactly the making of a stress-free vacation, is it? On the other hand, when you use a credit card, a hold reduces your available credit — and not the money in your bank account — which means it won’t put a damper on your vacation budget.

Get Additional Benefits

Depending on your credit card issuer, you may also be eligible for further benefits like:

• Protection on purchases, including extended warranties on electronics
• Travel perks, including rental car insurance and airport lounge access
• A smattering of other services, including concierge services to help you buy tickets or make hard-to-get restaurant reservations

Though credit card companies don’t advertise these benefits as much as their rewards programs, they can still be extremely valuable.

Best of all, you usually don’t have to do anything to get these benefits. For example, if you buy that sweet new smart TV on your credit card, you could automatically get an extra year on the warranty without lifting a finger (because we all know things are on a timer to break as soon as their manufacturer’s warranty is up).

Do Debit Cards Have Any Other Advantages?

The primary benefit of debit cards is they make it more difficult to spend money you don’t have.

And, depending on your spending habits, that could be more important than anything else. If you won’t be responsible with a credit card, a debit card is undoubtedly a smarter choice.

Paying sky-high interest charges, damaging your credit history, and spiraling into uncontrollable credit card debt are certainly not worth the perks.

But if you’re simply afraid of credit cards because they’ve been demonized by personal finance bloggers and certain financial gurus, we’d encourage you to think again.

The truth is that poor credit card management, such as revolving a balance or making late payments, is what you should avoid. As we’ve elaborated on, properly managed credit cards have myriad financial benefits, including rewards, credit building, and liability protection.

Debit Cards vs Credit Cards: Which Should You Use Abroad

Debit cards tend to be less popular for use overseas because of the hassle of switching your current account to an account that offers better perks for travel, though these can offer free cash withdrawals and won’t charge transaction fees.

While some use their regular debit card abroad, the rates tend to be higher and charge a number of hidden fees. It’s best to shop around to make sure your debit card offers the best currency exchange rate compared to credit card alternatives.

As debit cards usually charge more fees for usage and the exchange rate tends to be uncompetitive.

Credit cards do come with higher interest rates however, so it’s best to pay off your balance regularly and fully which is usually due on a monthly basis.

Alternatives

There are a number of alternatives to spending travel money abroad:

• Prepaid cards are topped-up with money in advance of spending and works like a regular debit card. Once you’ve used up the cash, you can simply top it up to continue using it.
• Currency exchange means you’ll be exchanging your sterling to the currency used at your destination, the amount you’ll receive will vary depending on the currency exchange rate, so make sure to opt for a currency comparison before making your final decision.
• Travellers cheques are less commonly used and accepted but provide you with pre-printed cheques with a designated amount.

Visa or Mastercard: Which Should You Choose

These two companies’ logos are on the lion’s share of credit cards – about 83% of all payments made in June 2019 were for cards stamped with one of their logos, according to Statista.com.

However, these companies have only a small amount of influence over the actual credit card product and benefits that a user may end up signing up for, as:

• They are just digital payment platforms – they only provide the system that allows a payment transaction to take place rather than distributing cards themselves.
• They do not issue credit cards, and so do not determine, for example, how much interest you could be charged on outstanding balances, nor what types of points you will earn if your card is attached to a rewards program. The issuing banks decide these things.
• Credit cards from both platforms are accepted just about equally anywhere in the world.

There are some minor differences between the two payment platforms, however.

These include:

• Some banks and outlets have “exclusive” arrangements with one payment platform over the other. For example, in 2015 National Australia Bank signed a 10-year agreement with Visa which means until 2025, the bank’s customers will only be offered Visa credit cards.
• “Benefit” programs – perks built into the cards by Visa or Mastercard before the issuing bank applies its conditions – differ slightly. See below section “What are premium credit cards” for more information. Mastercard has a “standard Mastercard” offering, along with higher levels of benefits – Platinum, World and World Elite – while Visa has a standard offering with extra benefits available with the Gold, Platinum, Signature and Infinite packages. However, banks may change these conditions and/or offer their own benefit programs, so it could be a good idea to check out the benefit package conditions on each individual credit card product a bank is offering before making a decision.

Visa or Mastercard: If they are much the same, how do you choose the right credit card?

The credit card market is a somewhat complex one, with hundreds of different types of packages on offer from financial institutions, each with its own set of benefits and conditions. When it comes to choosing the right credit card for your needs, you could start by assessing:

• What you will use it for: Is it for a one-off purchase? Or will you be buying items regularly on it? Different cards suit different uses (as discussed in more detail, below).
• Your capacity to repay any debt that accumulates: Paying for items in “credit” on the card actually means you are b
• orrowing money from a financial institution – going into debt. The bank will attach a set of conditions when it comes to repaying that debt, such as charging interest and expecting payments to be made by a specific deadline if you want to avoid additional costs. Interest rates on credit cards are typically much higher than for other types of debt products, such as personal loans or home loans. It could be worth comparing other types of borrowing against the long-term costs of having a credit card.

If you would use the credit card’s fringe benefits: Take a look at the card package’s rewards programs and any other benefits it offers, such as insurance over items purchased.

What credit cards, packages and deals your bank of choice is offering and how those packages compare to the rest of the market.

It’s also a good idea to research the different types of cards that are available, and what features they offer.

What types of Mastercard and Visa credit cards are available from lenders?

While there are a huge range of cards available carrying the Visa or Mastercard logo, most of them can be classified as falling to these broad consumer categories:

• Premium – for consumers wanting a card that offers more benefits and frills than a more basic credit card would, such as access to a concierge service or complimentary travel insurance
• Rewards – for those who want to earn a return on their everyday spending, in the form of cash-back, gift cards or lifestyle rewards, for example
• Frequent flyer – suitable for those who want to be able to redeem card points for flights
• Low rate – for those who want a low rate and flexible repayment conditions
• Low fee – for those after a low ongoing fee and potential access to some premium features
• Balance transfer – for those who want to transfer the outstanding balance from one card to another.

How to choose the best international debit card for you

Before you open a new travel-friendly checking account with a debit card, consider the following factors to find the best option for you:

• International ATMs. Check if the bank is part of the Global ATM Alliance, a group that allows account holders to use international ATMs with no added fees.
• Travel insurance. Some debit cards come with complimentary travel insurance that comes in handy if you lose or misplace luggage or are confronted by a medical emergency or flight cancellation.
• Travel rewards. Visa and Mastercard debit cards give cardholders access to a range of special global offers and promotions.
• International money transfers. Check what options the account has for transferring money overseas — and how high the fees are.
• Zero liability. Some cards — like Visa and Mastercard — have zero liability policies in place, so that you’re not held liable in the case of fraudulent or suspicious transactions. You should always notify your bank when you plan to leave the country. This way they can expect purchases from abroad.

What happens when you use your debit card overseas

When you use your debit card overseas, or while shopping at an overseas store, you’ll generally pay for extra fees.

For purchases

Your checking account will usually charge a foreign transaction fee when you purchase something in a foreign currency. You may also have to pay a margin on the exchange rate, which means that your bank sells you foreign currency at a higher price than you’d pay elsewhere.

Debit card readers in stores and hotels can often detect that you’re using a card from another country, and they may ask to debit the purchase in US dollars rather than the local currency. While this can help you save on foreign transactions fees, it often means you’ll pay a significantly worse exchange rate, and it’s generally the more expensive option.

For ATM withdrawals

Avoid making frequent ATM withdrawals while traveling. Even if you have an account that does not charge for you for international ATM withdrawals — local operator fees still apply.

Your normal bank account will usually charge the following fees: Foreign ATM fee, foreign transaction fee, exchange rate markup and, in most cases, the ATM itself will charge a third-party fee. These fees can make withdrawing money at a foreign ATM very expensive.

Conclusion

Credit cards offer the most benefits and protection against fraud, making them the overall best payment option. However, credit isn’t for everyone. If you have a track record of overspending, it may be better to stick with a debit card until you can responsibly manage credit.

You can consider debit cards that prevent overdrafts, encouraging you to spend within your means. Then once you feel comfortable opening a credit card, check online for a list of the best credit cards for all credit ranges: bad, fair/average, good and excellent. And if you already have both a credit card and debit card, opt for using your credit card to enjoy the most perks.