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Managing money is an essential aspect of daily life, and two commonly used payment methods are debit and credit cards. While both cards can be used to make purchases, they work differently and have distinct advantages and disadvantages. Understanding the differences between debit and credit cards can help you decide which card to use and when. 

This article will explore the differences between debit and credit cards.

Debit Cards

Debit cards are typically linked directly to your checking account and allow you to make purchases using the money available in your account. When using a debit card, the purchase amount is immediately deducted from your account balance. This means you can only spend the money you have available in your account. Debit cards make it possible for you to withdraw cash from an ATM, but fees may apply.

Credit Cards

Credit cards, on the other hand, are a form of borrowing. When using a credit card to make a purchase, the credit card company essentially lends you the money. You then have to repay the amount you borrowed, typically with interest. Credit cards often come with rewards programs, such as cashback or points, which can incentivize using the card for purchases. Credit cards can offer additional benefits such as purchase protection, extended warranties, and fraud protection.

Key Differences

One of the primary differences between debit and credit cards is how they impact your credit score. Debit cards can’t affect your credit score since they are not a form of borrowing. Credit cards, on the other hand, can significantly impact your credit score. Timely payments and keeping your balance low can help you build a good credit score, while late payments and high balances can hurt your credit score.

Another difference between debit and credit cards is their protection against fraudulent purchases. Debit cards offer limited protection, and you may be liable for any unauthorized purchases made on your card. On the other hand, credit cards provide more robust security, and you are typically only responsible for the first $50 of fraudulent charges.

In terms of fees, debit cards may come with fees for overdrafts or ATM withdrawals, while credit cards may have fees for late payments or annual fees. However, credit cards can offer more benefits, such as rewards programs, to offset these fees.

Understanding the differences between debit and credit cards can help you make informed spending and financial management decisions. Debit cards are linked to your checking account and allow you to spend only the money you have available, while credit cards offer a form of borrowing and come with rewards programs and other benefits. Credit cards can also impact your credit score, while debit cards do not. When choosing between a debit or credit card, consider your financial goals, spending habits, and level of financial responsibility.