Most people have at least one debit card and one credit card in their wallet. Although both cards can be used in many of the same places, it can be difficult to determine which card is best for each transaction. When you use your credit card, you may earn points, but your debit card won’t charge you interest. Which do you choose? Here are some tips to help you decide.

3 Major Differences Between Credit & Debit Cards

Where the Money Comes From
A debit card is backed by the money in your checking account. You can only spend what you already have. When you use your debit card it’s like using cash because you must have funds available in your account or the transaction will not go through. With a credit card, you have a pre-approved spending limit and you can use the card repeatedly until you reach that limit, regardless of how much money is in your bank account. Of course, you will have to pay that money back eventually. It’s like you’re making a promise or taking out a small loan every time you use a credit card.

Proof of Payment
Depending on the amount of the purchase, you may be required to provide a PIN or signature to complete the transaction. Typically, a PIN is used for a debit card. This can be set up by your bank or you may have access to change it anytime you want. It’s important to remember this number and never write it down. If someone else finds it, they can use your card and drain your bank account. With a credit card, you will not have a PIN but instead, you’ll be required to provide a signature. This signature states that you will pay the bill when it’s due.

Limits of the Card
Both types of cards have limits but in different ways. Since a debit card takes money out of your checking account, you can only spend as much as you already have. If you overspend, it may pull money from your savings account and you could be charged a fee. This is called an overdraft. Most banks will give you the choice to allow an overdraft to happen with a fee, or to cancel the transaction before it goes through and avoid the fee. Think about your own spending habits and decide what’s best for you. With a credit card, you will be charged interest for every month you carry a balance. This is where most people tend to get in trouble. They charge more than they can afford to pay off in a single month, carry a balance, and then owe more due to the interest.

When to Use Which Card

When deciding which card to use, consider your personal spending habits, the pros, and cons of each card, and the purchase in question.

A debit card is the ideal method of payment for daily purchases or small transactions. Groceries, gas, and movie tickets are all easily paid for with a debit card and are items you likely would have otherwise paid cash for. You don’t have to worry about paying it back or accruing interest, and this is also a good choice if you’re likely to get into credit card debt that you’ll have a hard time paying back.

Online purchases are more easily refunded or refuted if on a credit card. Car rental and hotel reservations may come with additional costs when you return the vehicle or check out. Many credit cards come with reward options such as cashback, earning points towards flights, and more. It may be more beneficial to purchase gas and groceries on your credit card if you earn extra points for them that you can save up for a rainy day.

Credit & Debit Cards from Common Trust

Think you’re ready for a new credit or debit card? At Common Trust, we offer both low-interest credit cards and hassle-free debit cards for our customers, as well as great tips for learning how to make the most of each card. If you’d like to learn more about these offerings, please don’t hesitate to contact us today by calling 781-933-2600 or visiting commontrust.org. We look forward to helping you achieve financial happiness.