What are the Differences Between Credit and Debit Cards?

The credit card

The main difference between credit and debit cards is that a credit card allows you to spend someone else's money. In essence, you are buying goods and services with money provided by the issuer of the credit card. This is all done with the promise that you will pay back the money you owe within a given time period.

If this does not happen, then the lender requires that you not only pay back the money that you've borrowed, but also an additional sum for keeping their money longer than the due date.

Additionally, most credit cards provide some type of protection if the card gets lost or stolen. Many debit cards lack in consumer protection programs.

The debit card

By using a debit card, you're using your own money, not someone else's. A debit card draws funds directly from your personal account held at a bank or financial institution. Most places that accept credit cards will accept debit cards. However, some places have not quite made the transition to debit card acceptance. For example, some car rental agencies and hotels prefer credit back up to hold reservations.

The murky waters

Now for the potentially confusing part... there are some debit cards that allow you to have a line of credit that exceeds the amount of money that you have in the bank. This usually occurs due to an overdraft protection feature on your checking account.

This feature allows you to make purchases greater than your balance as long as you pay it back right away... plus an additional fine for overdrawing on your account. It is because of features like this that some people can confuse a credit card with a debit card and vice versa.

Hopefully, we've made the differences between credit and debit cards a little clearer for you. And remember, like credit cards, use your debit cards wisely or you can find yourself in a real financial pickle!