Understanding Credit Cards Vs. Debit Cards

Debit cards and credit cards are payment cards issued by banks and other financial institutions to cardholders to pay for things. However, there are some differences between these two types of cards. It is important to familiarize yourself with the differences and the types of debit and credit cards so that you can use them accordingly to your benefit.

 

Differences between credit and debit cards

A debit card is actually a payment card that simply deducts money directly from a customer’s bank account to pay for a purchase. It allows the holder to transfer money electronically from his or her checking account while making a purchase. Such a card eliminates the need to carry cash or checks to make purchases.

A credit card, on the other hand, is a card issued by a bank or financial institution, allowing the cardholder to buy goods and services with credit. It actually allows the cardholder to borrow funds. Such a card can be really helpful in buying certain items when you are out of money while shopping. In this way, they tap the benefit of the available credit.

Types of debit cards

Standard cards

These are simple payment cards issued by banks. You can use the card to withdraw money or pay for items you buy. Some issuers pose a limit of daily withdrawal on these cards.

Enhanced cards

These cards come with extra premiums. The daily purchase or withdrawal limit is really high, allowing users to pay or withdraw without any hurdles. Also, such cards come with better protection, convenience and enhanced benefits compared to standard cards.

Types of credit cards

Reward credit cards

As the name signifies, these cards earn you rewards each time you make a purchase. While some cards pay a flat rate of 1 to 2 percent, others provide extra bonuses on certain categories of purchases. Usually, rewards are paid in various forms, including cash-back, gift certificates and airline miles.

Low-interest cards

Such cards are really useful in case you carry some debt amount on your card each month. In line with your situation, you can choose a card that has a lower rate of interest or no interest for the introductory period. This type of card can be helpful in lowering your debt and interest burden on cards.

Balance transfer cards

These are ideal for individuals who have accumulated a lot of debt on their other credit cards. A balance transfer credit card allows you to transfer your debt from your current card(s) to a new card. Depending on the type of card and issuer, it also gives you 6 to 21 months to clear the debt with no interest. This kind of card can be handy for getting out of credit card debt.

Bottom line

Today, it is almost impossible to imagine a world without credit and debit cards. Whether it comes to purchasing goods and services or payment transactions, these cards allow you to make payments efficiently. As such, it is beneficial to get familiar with the differences between these two cards and the various types offered. Just take a look at the explanation above to help familiarize yourself with the types of these cards for managing your finances.