Both credit and debit cards are easy and convenient ways to make a purchase without carrying cash. They both have benefits, but which is the best and what’s the difference between the two?
Find out everything you need to know about credit cards and debit cards, from how they work to when the best time is to use each one, below.
What is the difference between a credit card and a debit card?
Debit cards explained
Debit cards are linked to your bank account and take the money you spend directly from the funds in your account, without any additional fees or charges added. The transaction is almost instant.
Debit cards are great for keeping in control of your finances and limits you from overspending. However, banks may charge overdraft fees if you spend more than your available funds. It’s always best to talk to your bank to be clear about whether you have an overdraft and what the fees are for going into it.
They are often best to use for your everyday spending or for withdrawing cash from your bank account.
Credit cards explained
A credit card works differently to a debit card, as it is essentially borrowing money from the card issuer. Every credit card has a different spending limit on it, which is based on your credit rating. The better your credit rating, the larger your spending limit. However, you should always be careful that you can afford the repayments.
When you make a purchase on your credit card, you’re making an agreement to pay back the money borrowed. This can sometimes be with added interest on top, especially if you don’t meet the minimum payment on your credit card each month.
Credit cards are great for making big purchases, as you only have to pay off the minimum payment on them each month and many have certain periods that are interest-free. They can also be used to build up your credit rating with regular spending if you’re able to clear the balance each month. However, if you don’t make your repayments on time then it can be quite easy to get into debt.
Credit vs debit card
Credit and debit cards both have their own advantages and disadvantages. It’s a good idea to have both in your wallet to prepare for all occasions.
Is it better to pay using a credit or debit card?
Different circumstances determine whether it’s better to use your credit card or debit card. Generally, for day-to-day spending on things like food shopping and transport, it’s better to use your debit card. Larger purchases that you may not be able to afford up front, such as buying a new sofa or booking a holiday, are better to buy on your credit card for payment protection.
Credit card: advantages and disadvantages
There are many advantages to paying on your credit card. These include:
- Improving your credit rating
- Added legal protection
- Insurance on expensive purchases
- Reimbursement for goods damaged in transit
- Earning cash back and travel rewards on some purchases
- Extra security when paying for flights, home furniture and other expensive items
- Increased spending
- Ability to hire a rental car
- Better protection against fraud
Disadvantages of credit cards can be:
- Easy to get into debt if you don’t make the repayments on time
- Interest is added if you don’t pay off the balance in full
Debit card: advantages and disadvantages
Many advantages for making purchases on your debit card include:
- Online banking means you can easily track spending
- Cards can be quickly cancelled if lost or stolen
- Debit cards can be used in most places, so there’s no need to carry cash
- No interest is charged on purchases made with a debit card
Disadvantages of debit cards are:
- If goods are damaged in transit, you need to deal directly with the merchant
- When spending more than is in your account, you’ll be overdrawn and need to pay a fee
- You may be charged a small fee to withdraw cash from an ATM outside of your network
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