Financial Desk Team 
Many Canadians enjoy having the option of using both credit cards and debit cards. Both types of cards come with their own advantages and drawbacks. Understanding them helps you make better financial decisions and even allows you to better manage your money.
Here’s what you need to know about credit cards and debit cards so you can decide which is best for you.
Understanding Credit Cards
The basics of credit cards are pretty simple: You apply for a credit card and, if approved, are given a credit limit which is essentially an amount you “borrow.” You can pay off the entire balance each month or, if that’s not feasible, pay at least the minimum amount. Each month, you receive a statement of your account, which outlines what purchases and payments have been made on the card during the statement period, what fees have been charged, and what the minimum payment amount is.
Among the benefits of credit cards:
- You can use them for an unexpected financial situation that requires immediate payment, such as an emergency vehicle repair
- They are one of the best ways to build your credit history, and, if used strategically, to keep your credit score at a desirable level
- Most credit cards now offer cash-back rewards or points programs that can be highly beneficial
- Many credit cards come with purchase protection and extended warranties on certain purchases
- They offer fraud protection, minimizing your risk of financial loss if someone uses your card for unauthorized purchases
A few things to consider on the flip side are interest rates and the potential to build up significant debt. It’s tempting to use your credit card for large purchases and worry about paying the bill later. Some credit cards charge annual fees or have higher interest rates, which is why it is always recommended that you do your research before deciding which credit card to apply for.
Understanding Debit Cards
Debit cards are connected to your bank account. When you make purchases or withdraw cash using your debit card, that money comes directly from your bank account. Unlike credit cards, you don’t need to apply for a debit card because you’re not borrowing money. You’re using your own money.
Among the positives of debit cards:
- You generally stay out of debt and aren’t charged interest fees (unless you use overdraft).
- They have security features to protect your bank account.
- Debit cards are generally free, although you may be charged for transaction fees.
- You can access your money anytime, and it’s easy to keep track of what you have in your account.
However, there are some drawbacks to only using debit cards.
Debit cards don’t help you build your credit. They also have very limited fraud protection and extremely limited rewards. Should an emergency or unexpected cost come up, you could be left with nothing in your account until more money comes in, if you even have enough money to cover the expense upfront.
Which Card is Best for You?
If you’re like many consumers, the ideal scenario is a combination of debit and credit cards. From there, knowing when to use each card is vital. There are times when using a credit card is more advantageous. Large purchases and paying for travel and travel-related expenses allows you to pay these things off over time if you so wish. And if you’re looking to build your credit, purchase what you can afford on a credit card, pay your statement on time, and watch your credit rating flourish.
If you want to avoid debt at all costs and typically only make small, daily purchases, go for the debit card. Using both cards effectively and strategically can help you to maximize your benefits.
Whichever card you prefer to use, remember to spend responsibly and always stay within your budget.
About The Author
Frank Nez 
