Choosing between a credit card and a debit card can make all the difference between how you budget and spend your money. It is important to compare the two types of cards so you can make the most informed choice and decide the right option for you and your financial situation.
Credit Cards
A credit card gives you access to revolving credit. This means you can borrow ongoing money up to a certain set amount. You must pay this money back. However, there isn’t a repayment schedule like what you would experience with a personal loan. Credit cards offer flexibility, meaning as long as you are making regular payments to pay off the balance, you will be able to continue borrowing. Credit cards do incur interest. This interest is added to money borrowed if you don’t pay it off by a certain amount of time, usually 30-60 days depending on the card you have.
Debit Cards
Debit cards work differently to credit cards in that they are linked to your bank checking account, and the funds will come directly from that account. So, whenever you make a purchase with your debit card, either online or in a store, the money will come out of your account pretty much immediately to pay for the item or service. So, if you don’t have enough funds in the account, your card may be declined.
Key Differences Between Credit Cards and Debit Cards
Debit Cards don’t Impact your Credit Score
Because your credit score is calculated based on money you have borrowed and paid back, a debit card won’t impact your credit score as the funds come straight from your own bank account. If you would like to make a difference to your credit score, and you know that you can consistently pay back your borrowed funds, a credit card may be a good choice for you.
You Don’t get Charged Interest with a Debit Card
As debit cards work by using your own money, rather than borrowing money from a lender or bank, you do not get charged interest. Debit cards are great for those who want to avoid completely being charged interest. However, it’s important to note that some debit cards will allow you to go into overdraft. If you make a purchase for something and don’t have enough money in your account, your bank may let you go into overdraft and will cover the difference. They might charge you overdraft fees if you don’t pay that money back within a certain time.
Credit Card have Rewards
Credit cards often come with rewards and benefits such as cash rewards and the ability to earn Airpoints. For those who want to enjoy rewards and get something out of their spending, such as Airpoints for travel, or access to airport lounges, you may want to consider applying for a credit card.
Which is Best for Me?
In today’s financial climate, it can be handy to have both types of cards in your wallet. But it is important to understand the difference between a credit card and a debit card, and understand what they will mean for your financial situation and your budget.
Credit cards can be useful for larger purchases where you don’t want to drain your savings at once. Just be sure to consider your budget and what you can afford to pay back, and whether you might risk falling into a cycle of debt if you use your credit card for lots of little purchases. Ask yourself, can you afford to pay back money you borrow on your credit card before the interest incurs? If you can avoid the interest incurring, a credit card may be a great fit for you that builds your credit score and rewards you.
Alternatively, a debit card is great for those who want to avoid debt, or just spend the money they have. It is also a good option for those who don’t want to impact their credit score. This may be a great choice for everyday spending.
It is Important to Compare
Take the time to compare the different credit cards and debit cards out there. Jump on Money Compare to compare different American Express cards to see if they offer a credit card that will suit you and your needs. By comparing the options available to you, you can make a fully informed choice and therefore, make the best decision for you.
Compare American Express Credit Cards
