Credit card and debit card. They look like soulmates: they are the same size, are used in the same way and on one of their faces there are a number of numbers that identify them. But as usually happens with twins, they are different.
While both replace the cash, the credit card acts as a loan that must be paid each month, while the debit card is “plastic money” that is deducted from your bank account instantly.
Let’s see more in detail.
The credit card
A credit card is not linked to your checking account. It is a credit service provided by a financial entity that allows you to buy things up to a pre-established limit, paying at a later date than the date of purchase.
Purchase costs accrue during the current cycle and once the cut-off date has elapsed, these are reflected in the account statement.
It should be noted that with credit cards, you have the possibility to pay the account statement in full until an interest-free due date, or to pay a minimum amount and postpone payments until the next account statement. However, that implies that you will have to pay interest on the balance.
Remember: a credit card is not an extension of your salary. We recommend that you just spend what you know you can pay at the end of the month billed.
A debit card, meanwhile, is used to pay for products in physical stores or online and also to withdraw money at ATMs. The money is automatically withdrawn from your savings or checking account at the time of making a purchase, so it is necessary to have enough money in your account.
Pros and cons of both cards
Credit cards usually charge certain fees or commissions. The above depends on each “plastic”, but in general banks can charge annuity (a single annual payment), financial charges (according to the interest rate and the amount of debt accumulated month by month) or taxes for expenses abroad, among other surcharges .
As for debit cards, they also usually charge commissions either for the issuance of the plastic, for requesting an additional card or for the currency exchange when withdrawing money from an ATM in another country.
With credit cards you can make purchases in installments. In addition, if you generate expenses immediately after the closing of your statement, you may have more than one month to pay the amount invested in your purchases, when the next statement expires.
In this sense, debit cards are perceived at a disadvantage, since the expenses are not financed, but are directly “debited” or discounted from your checking account at the time of purchase.
Credit cards, when you get cash from ATMs, can charge you a commission for that service.
In the case of debit cards, if you withdraw money from an ATM at the card issuing bank, it is common not to pay for that service. However, there may be a commission when you do it from another bank.
Many of the credit cards provide various benefits, such as discounts in stores, accumulation of miles or kilometers for air tickets or hotels with each purchase and free insurance, such as renting a vehicle.
Debit cards do not usually have additional benefits.
With credit cards, the spending limit is imposed by the financial entity that gives you the card. Even so, it could be the case that if you spend more than you can pay at the end of the monthly period of your statement, and generate a debt that is difficult to pay off.
With debit cards, the limit is given by the money you actually have in your associated account. Even if you wanted to, you cannot generate debts, but you can run out of funds.
Credit and debit cards could be thought of as twins, in the sense that both supplant cash. But if they are similar, they are at the same time very different.
The reason for being a credit card is that it allows you to trade with the money you do not have at the time of purchase, but which you will pay in the near future.
On the other hand, the essence of a debit card is that it is your own money previously deposited in a checking account associated with that card and discounted in the present.