How is a debit card different from a credit card?

While you can spend money you don't currently have with a credit card, a debit card requires you to have the money on hand immediately.

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A debit card is attached to your bank account – whether it’s a savings or chequings account. You can use it to purchase goods, services, or use your card to withdraw cash from an ATM.

While a debit card can be used similarly to a credit card, the biggest difference is that you can only spend money that you actually have in your bank account – it’s not a card that you can use with the idea of paying off your balance later. Let’s dive deeper into the functions of a debit card and consider when it might be better to use a debit card instead of a credit card.

How to use a debit card

Much like a credit card, you can swipe, tap or insert your debit card into a terminal or ATM. When you insert or swipe your card, you’ll typically need to input your four or six digit PIN number. You’ll then be able to access your account by choosing chequings or savings from the screen menu.

You’ll need to have enough money in your bank account to cover the entire cost of your purchase when using your debit card. If you don’t have enough money, the transaction will be declined due to insufficient funds, and you’ll have to find another way to pay – usually with a credit card, since you’ll need to use money you don’t have.

When a debit card might be better

You might use a debit card over a credit card when:

  • You’ve got enough money in your bank account to pay for your purchase.
  • You want to avoid interest charges.
  • You want better control of your budget.
  • You want to avoid debt.

When a credit card might be better

You might use a credit card over a debit card when:

  • You need access to money you don’t have right now.
  • You prefer to borrow money now and pay it off later.
  • You’re confident you can pay back what you owe each month.
  • You want to reap the rewards offered by credit cards.
  • You know the risks when it comes to overspending and landing in debt.
  • You shop online frequently and want better protection.

Benefits of using a debit card

If you don’t have the need for a credit card or you’re unable to get one, a debit card can provide many of the same features. Some debit card benefits include:

  • A lot cheaper due to no interest charges.
  • No risk of spending money you don’t have.
  • You can access cash at an ATM.
  • No interest is charged on the account.
  • Some debit cards offer rewards and other features.
  • You can use it in nearly all the same situations you would use a credit card.
  • You can use most debit cards for online shopping.
  • Use them overseas, although some are better than others.
  • Receive monthly statements with payment details.
  • No risk of overlimit or late payment fees which are costly.
  • Easier eligibility requirements, especially for anyone without a credit history or with a bad credit history.

Bottom line

As you can see, there are many different reasons why you might choose a debit card or a credit card for your needs. You’ll likely want to have both a debit card and a credit card on hand, as they both can come in handy in different situations.

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