Credit Cards vs. Debit Cards: What’s the Difference?

In today’s world it is almost impossible to make it through the day without needing to use a card to make purchases. But all cards are not equal. While credit and debit cards may look nearly identical, there are major differences between the two. Let’s take a look at the benefits and risks of both.

Debit Means Deduct

The term debit means to deduct, or subtract. When you use a debit card, you are deducting from the balance you have in your bank account. In other words, subtracting from money you have already earned. Each time you use your debit card, the available funds in your bank account will shrink accordingly.

Credit Is Borrowing

Credit cards work like debit cards, in that they can be swiped at the store and you will be allowed to leave with your purchases. However, that is about where the similarities stop. When you buy something with a credit card, the company that issued the credit fronts the money for the purchase, and you agree to pay them back later. That’s why you have to SIGN a credit receipt. You are acknowledging acceptance of a debt.

Credit Isn’t Free

The credit card company doesn’t loan you money out of benevolence or compassion. They loan the money for profit. They may enable you to make purchases when you don’t have cash available, but those purchases will come with interest attached. Every time you use your credit card, you increase the amount of the bill due at the end of the month. And if you can’t pay off the entire balance, the credit company has no problem dragging out the length of the loan for as long as you are willing to pay interest on it.

You Can’t Spend What You Don’t Have

Using a debit card can be considered the same as carrying cash. You can spend only as much money as is in the account, and then you won’t be allowed to continue making purchases without having the card declined. While this situation is not ideal either, at least you will be paying only the price of the item and not chained down by more unsustainable interest at the end of the month.

Overdraft is Also Credit

Once you stray into overdraft territory, the bank becomes more like a creditor than when your account was positive. You will have to pay them back as well as an overdraft fee that can be much more than the amount of interest accrued through a credit purchase. Any money that gets deposited gets put toward the debt until the balance gets back above zero.

Don’t get caught up in the overdraft game. These are mounting debts and the bank has more access to your funds than the credit companies.

If you are struggling to make monthly payments due to overwhelming credit debts, CreditGUARD is here for you. Call today to speak with one of our trained credit counselors and see which of our credit counseling or debt management services will work for you.

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