“Thank you for choosing shop-mart, your total is $154.87. Will that be debit or credit?”
Unless you are one of the few folks who pay with everything in cash, you have definitely heard a phrase like that a time or two. But when you are asked debit or credit, what is really the difference between the two?
It’s important to understand how our money works and every way that we spend it. The difference between debit and credit cards is basic financial literacy and something everyone should know.
Continue reading for all the important info on debit and credit cards.
Similarities Between Debit and Credit
Upon first glance, you might not even be able to tell the difference between debit and credit cards. They are designed to look the same and function the same way when you pay, even though they have different purposes.
Both cards pull money to instantly pay for items without the hassle of bringing along cash everywhere. While a vendor may not know it when you purchase something, the money is actually being drawn from two different places.
Differences Between Debit and Credit Cards
Credit cards charge a transaction in a more complicated way, through a line of credit with the bank you have your card with. Debit cards take the money for a transaction right off of your account in a simple and easy way.
Typically, a credit card has a pay period (normally a month) where you will pay your charges for that period. You are responsible for making settling up each month and paying off the charges on your credit card.
Debit charges work on a day-by-day, even minute-by-minute basis. When you buy something with debit, it will show up immediately.
Choosing between the two heavily depends on your financial and personal situation. If you need a card for infrequent purchases and basic transactions, with little or no management, you are better off with a debit card.
But if you are using your card daily or for important and costly charges like bills or groceries you might be better of electing for a credit card. Let’s take a look at a few more possibilities you gain with credit cards.
Advantages to Credit Cards
You will need to track your credit cards and that comes with more responsibilities, but there are also more leeway and advantages as well. The best credit cards offer great cashback rewards and allow you to spend thousands of dollars each month.
If you have good credit and spend within your limits, you will be able to take full advantage of your benefits. Credit cards are both a higher risk and reward than debit, as it causes some to spend more than they can afford. Also, you need good credit to get the best benefits, and it takes years to build that.
Many businesses prefer to deal with credit cards and make it easier and less complicated for customers using those cards. That goes for virtual credit cards as well.
Now You Know
Now that you know the difference between debit and credit cards, you can manage your money better and make the best decision on which one to make.
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