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By the Staff at PrepaidDebitCards.net

Before you can select the right card for your needs, it is very important to understand what credit cards and debit cards are, and what are their similarities and differences.

Here are some similarities between credit and debit cards:

These cards are offered by the same financial institutions. Both of them offer almost the same rewards, like cash back and bonus points when you purchase something using your card. These cards also allow you to make payments on the internet, using a special pin number related to them.

And now, some differences between credit cards and debit cards:

There are some overdraft facilities linked to a credit card, and these facilities are not provided with a debit card. A debit card can allow payments only through the funds available in your account. So credit card holders have to pay monthly bills. In case they do not pay the bills, they have to pay extra charges as well. Debit card holders do not have to pay any bills, and thus there are no such charges on them.

Here is how a credit card works: You go to a store (retail or online), and you select the item that you want to buy. You supply your credit card number, and you are able to make the purchase. But the money is not transferred as yet. The merchant will get paid when your credit card company sends him the money, which is usually within 30 days. So you get a bill within 30 days and you must pay him- at least partially. Different companies have different rules for this. If you have an American Express card, then you have to pay in full.

And here is how a debit card works: You go to a store and supply the card number (just like with a credit card), and the merchant will be paid by the debit card company. The difference here is, since the money is already in your debit card account, the money will be transferred instantly. So the money goes from your account to the merchant’s account, and the balance remains.

Advantages/Disadvantages With a credit card, the money isn’t available at the time of purchase. There are at least 30 days for you to pay for the purchase you made. But then, it is very easy to run on large balances when you use credit cards since you have to pay for them later. This fact becomes so enticing that people make a lot of purchases, and then payments become difficult.

With a debit card, you know that the money will be taken from your account, and so you don’t have to pay any bills. And when you don’t have to pay bills, there won’t be any piling interests on them. And the disadvantage is that they are pretty much like using cash.