What Is the Difference Between a Credit Card and a Debit Card?

what is debit credit

By Miriam Caldwell. Money in Your 20s Expert

Miriam Caldwell is a freelance writer with a specialty in personal finance. She believes that you can lay a solid foundation by starting to manage your finances in your twenties.

Question: What Is the Difference Between a Credit Card and a Debit Card?

A debit card takes it from your banking account and a credit card charges it to your line of credit.

Debit cards offer the convenience of a credit but work in a different way. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their bank and it is transferred to the merchants account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through.

For this reason, it is important to keep a running balance of your checking accoun t to make sure you do not accidentally overdraw your account. It is possible to do that with a debit card.

A credit card is a card that allows you to borrow money in small amounts at local merchants. You use the card to make your basic transactions. The credit card company then charges you interest on your purchases, though there is generally a grace

period of approximately thirty days before interest is charged if you do not carry your balance over from month to month.

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In the past many people felt that you needed a credit card to complete certain transactions such as rent a car or to purchase items online. They also felt that it was safer and easier to travel with a credit card rather than carrying cash or trying to use your checkbook. However debit cards offer the same convenience without making you borrow the money to complete the transactions. It can be difficult to determine when to use a credit card or a debit card .

It is better to use your debit card whenever possible, because it will prevent you from accidentally falling into the credit card trap. When you can pay cash for most items, you are doing better financially. Some rental car agencies and hotels may still request a debit card over a credit card because they want to have a card where they can bill you for damages to their property. Be sure to check with the hotel or agency before you travel to make sure you can use your debit card instead of your credit card.

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Source: moneyfor20s.about.com

Category: Bank

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