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Credit Card vs Debit Card: What's the Difference and Which is Right for You?

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September 27, 2022


What’s Inside

Deemed as one of the most popular modes of cashless payment, choosing the right credit card can be daunting, given the array of options available. Another common cause for the confusion could be the credit cards vs debit cards debate. While, on the face of it, both may seem similar, the features and operations differentiate the two.

So, what are the differences between credit cards and debit cards? Let’s find out.

Credit cards vs Debit Cards

It’s fairly easy to get confused between a credit card and a debit card, especially when they’ve been issued by the same bank. This relates in part to the fact that they are the same size and look somewhat the same. Further, both these cards are ordinarily accepted at many places and provide cardholders with the convenience of not having to carry any cash.  

That said, the credit card and debit card differences relate to the account from which they draw money. While debit cards extract money from your banking account, credit cards charge the money to your credit line. Not sure what that means? Read on.

What are Debit Cards?

These are payment cards that deduct money directly from your savings account at the time of transaction. They are the most common cards issued when a savings account is opened with a bank. They can also be used to withdraw money from ATMs. 

All debit cards have personal identification numbers (PINs) that may need to be used at stores and ATMs. Back in the day, credit card and debit card transaction receipts needed to be signed at the time of purchase, but nowadays, users have to enter a pin, so the need for a signature is not required in such cases. It is worth noting that debit card purchases can be made without interest having to be paid. Further, credit history isn’t impacted by the purchases you make with this card. 

It is also important to understand that money is immediately deducted from your account when you pay with this card. 

What are Credit Cards?

Credit cards make it possible to borrow money against your card’s credit limit. Your credit limit is an amount of money pre-approved by your bank that you can use as long as you repay the amount in the given time. These cards can be used to make ordinary transactions which are then listed on your bill. The credit card issuer pays what you owe for your purchase to the merchant. Once you receive your bill, you pay this amount to your card issuer.  

Interest is charged on purchases if a balance is carried forward from one month to the next. Credit cards charge high rates of interest in comparison to loans. It is important to know that your credit card payment history, along with your credit score, can impact your overall credit score. Your credit history is used by a bank to determine what your credit limit ought to be.

Differences between Credit Cards & Debit Cards

Let's delve into the differences between credit and debit cards:

1. To Spend or Not to Spend

It is impossible to overspend with a debit card as your purchases are constrained by the amount that’s available in your bank account that your card is linked to. On the other hand, credit cards carry the risk of overspending. While you have credit limits given to you by your card issuer, this doesn’t mean you can spend all of it. Overspending here would mean spending more than you can afford to repay.

2. Fees Applicable

Debit cards provide the same conveniences that credit cards do without your having to borrow money or pay a fee or interest on each of your purchases. This only holds true in the case of credit cards, where annual fees and associated charges can be high.

3. Money Management 

Debit cards help with money management and encourage you to live within your means. Conversely, you can end up getting carried away with credit cards and can end up living beyond your means. 

4. Advantages Provided

Credit cards bring with them certain perks like airline miles or discounts at certain hotel chains, lounge access at airports, or simply a percentage of spends as cashback. These perks are often given as rewards for choosing to make payments with your card provider. In certain instances, credit card providers may issue additional insurance on certain purchases and allow for easier refunds and returns. It isn’t the norm for debit cards to be linked with the same advantages and perks. 

5. Emergency Help

Credit cards are able to help cover expenses in emergencies and allow you to pay off your card prior to interest being added to your purchases. This can help you expense big payments prior to actually having the money needed to pay for it. It is important to be careful that you secure this money soon after, though, as emergency spending on a credit card can rack up high interest if it isn’t paid by the due date. 

With a debit card, you are only entitled to the money that’s in your linked account. If you don’t have the funds needed to pay for an emergency, you can end up in a tough spot. It is best to create an emergency fund for yourself such that you don’t back yourself into a corner. 

Merits and Shortfalls of Credit Cards

Credit cards carry with them the following advantages.

  • They allow you to build credit history over time - this lets you take loans at slightly lower interest rates or get access to high-reward credit cards etc.
  • They can provide certain purchases with warranties and purchase protections
  • Credit cardholders are provided with fraud protection  

Some downsides of credit cards are as follows:

  • Overspending can lead to debt 
  • If you frequently pay your credit card bills late, your credit score can be adversely impacted. Or worse, you end up paying very high interest as fees for late payments.
  • The interest and fees applicable to credit cards can be high

Merits and Shortfalls of Debit Cards

Debit cards carry with them the following advantages.

  • They help you avoid debt as you only spend what you have
  • They can provide you with fraud protection however it may not be as elaborate as credit card providers
  • You don’t need to pay an annual fee to use a debit card 

Some downsides of debit cards are as follows:

  • They typically don’t give you rewards
  • Debit cards don’t help build credit
  • There are certain fees associated with maintaining a current account or savings account. Most savings accounts require you to maintain a minimum balance, and failing to do so attracts a penalty. On Fi Money, you can open a zero balance savings account and get an absolutely free Debit Card.

Final Thoughts

Having access to both a debit and credit card is ideal in today’s world as they allow for cashless transactions. They also make it possible to carry out online payments with ease. That said, each kind of card has its advantages and drawbacks. Understand what they are prior to spending money with them. The uber cool Visa platinum Fi-Federal co-branded debit card comes with zero issuance fees, annual maintenance fee and no forex charges as well! Now that’s something worth checking out here.

Frequently Asked Questions

 1. What are the pros and cons of Debit cards and Credit cards?

 The pros and cons of debit and credit cards have been discussed in the table below.

2. What are the advantages of a credit card over a debit card?

The advantages credit cards provide over debit cards are as follows.

  • Credit cards are able to help cover expenses in emergencies and allow you to pay off your card prior to interest being added to your purchases. Debit cards only entitle you to the money that is in your linked account. If you don’t have the funds needed to pay for an emergency, you can end up in a tough spot. 
  • Rewards in the form of airline miles, hotel stays and discounts at restaurants are offered by credit card providers. These rewards aren’t extended to debit cardholders. 
  • Finally, warranties and purchase protection offered are offered by credit card providers and not debit card providers.

3. What is the main difference between a debit card and a credit card?

The main difference between credit and debit cards is that debit cards deduct money from your account each time you make a transaction, and credit cards come with a credit limit that gets deducted every time you make a transaction. A credit card user has to pay the amount they spent through their card every month, while a debit card user pays as they spend. The money your credit card comes with is essentially borrowed from the bank, while the one in your debit card is connected to your account.

4. Which is better debit or credit card?

What works for you between the two can be completely subjective. Credit cards come in handy when you don't have sufficient funds for a bigger purchase, and debit cards come without the pressure of clearing dues every month. If you're good at managing your bills and sticking to your budget, credit cards can come in handy as they are more rewarding than debit cards. Plus, the money in your credit card is insured by the bank.

5. Can I use credit card in ATM?

You can use a credit card to withdraw cash, but this comes with high fee. Withdrawing money from your credit card is seen as a cash advance or a short term loan that comes with a high fee. You should limit ATM withdrawal using your credit card to only emergency situations.

6. Can a credit card be used as a debit card?

Yes, you can use your credit card like a debit card to get a cash advance at an ATM. However, it is a costly option. Credit card cash advances typically have a different limit compared to your purchase limit, and charge a higher APR with no grace period.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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