Credit or debit cards: which is which?


Credit or debit cards: which is which?

Credit cards and debit cards can both be used to help make managing your money easier, but it can also be pretty easy to get muddled between the two. Each has its own perks and drawbacks, so it’s a good idea to clue yourself up on the differences, similarities and restrictions of both – and that’s where we can help.

What’s the difference?

Firstly, a debit card is linked to your current account and any money you spend on it is automatically taken – or debited - from your balance. You’ll only be able to spend on a debit card if you have the funds available in your account (either in credit or from your overdraft). Usually, if you don’t have the money available in your account, your card will be declined.

A debit card can be used to take money out at cash machines or to pay in shops with chip and pin services, and can also be used to shop online. Contactless debit cards are starting to become more popular, and these can be used to pay in some shops without the need to enter a pin number – but you are usually restricted to spending under £10 or £20 each time.

Meanwhile, a credit card is typically not linked to your current account and works by allowing you to borrow money (up to a pre-agreed limit) and pay it back later – usually by making a repayment on a specific date once a month. You should be informed of your borrowing limit when you open your credit card, and this can range from as little as £100 to several thousands.

You will receive a monthly statement showing how much you have spent on your credit card. From this, you could then choose to pay it all off in full or in part, or you may be able to make a minimum payment and cover the rest over a period of time. However, it’s important to remember to keep up with your repayments as interest can build up if you don’t, and your credit score could be damaged too.

Similarly to a debit card, you should be able to withdraw cash from an ATM (although there will be a cash advance charge for this, and usually an interest charge from the date of withdrawal), pay in shops using a chip and pin and purchase things online with a credit card. Contactless credit cards are also becoming more popular.

What are the positives of using each?

Both cards can be useful when used appropriately. Some benefits of using a credit card include:

  • They provide an easy way to pay for unexpected bills, as you usually have around 56 interest-free days to pay off what you spend.
  • If you have a damaged/no credit rating, credit cards (like the new Ocean credit card) can be an accessible way to rebuild your credit rating providing you keep up with your repayments.

Some benefits of using a debit card include:

  • Unless you have an overdraft, there shouldn’t be any borrowing involved – which means you don’t have to worry about interest rates or paying anything back.
  • Usually free of charge.
  • You don’t have to worry about withdrawing cash, as so many places accept cards.

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What are the drawbacks of using them?

Alongside the positives, there are also a few things to remember when considering which to use. Some drawbacks of using a credit card include:

  • You could end up paying lots in interest.
  • As with all forms of borrowing, if you default on your repayments you risk harming your credit rating.

Some drawbacks of using a debit card include:

  • You can typically only spend the money that’s available in your account.
  • If you have an overdraft, slipping into it could incur charges.

Which is right for me?

It’s hard to say whether you’ll be better off with a credit or debit card, but if you find yourself needing a bit of extra cash after payday – and you feel confident in being able to repay what you borrow on time - a credit card might be a good solution.

But if you don’t trust yourself to be able to pay back what you borrow, it’s probably a good idea to stick to debit. With a debit card, you’ll only be able to spend your own money (unless you have an overdraft), so there’s less risk attached.

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