Using a card is much more than just withdrawing money from the bank: it can save you a lot, or cost you a lot when understanding the differences. It can also offer a range of other benefits if you care to learn more about it. At a glance, debit cards and credit cards look the same. They both have expiration dates, 16-digit card numbers, and logos of popular payment solutions companies (Visa and Mastercard). Plus, you can use them for purchases the same way.

But there is a difference between the two, and it’s where the money you use is drawn from when making purchases or withdrawals. When you use a debit card, the money comes from your bank account. For credit cards, the money comes from a line of credit, which is a type of loan.

Here is what you need to know as a consumer.

What’s a Debit Card?

A debit card is a card you get from your bank to access your everyday transaction on-the-go. You don’t need to get your money over-the-counter when you want it. You simply use the card to withdraw cash at the ATM and pay for purchases using the money in your checking account.

You’ll use your PIN to complete transactions over $100, but there are also cases where you can make payments without using the PIN. With this card, there are no interest charges, and it will never affect your credit rating. (That is unless you have an overdraft and you end up owing money you don’t pay back – but that’s a whole other post)

What’s a Credit Card?

A credit card is like a loan. You have to apply for one to get it, and you’re given a specific line of credit if approved. This is known as a credit limit, which is the amount of money you have to spend. The amount you get depends on your credit history and income.

You can use the card to make payments for purchases or withdraw money at the ATM. The latter will see you charged interest from the moment the transaction is processed. Each month, you get a bill for the amount you spent. You must pay the monthly balance in full to avoid the high-interest rates that credit cards have.

Credit Card vs. Debit Card

Generally, cards are a convenient alternative to carrying cash around. According to RBA data there is around 13 million credit cards in Australia and almost 40 million debit cards! When you lose your card, you can easily close it and get it replaced, protecting your money. Credit cards and debit cards have their own unique benefits, and it depends on how you use them.

A debit card can help you keep your spending to a minimum since you’re using your own money. You don’t pay interest on purchases, and you can use it to complete payments wherever it’s accepted. However, you might be liable for fraudulent purchases as debit cards don’t offer great security features.

Credit cards, on the other hand, make it easy to build a positive credit history. A record of timely debt repayments can earn you the trust of creditors. Also, they have excellent protection if your card is stolen or lost. Some credit cards come with rewards programs, allowing you to earn redeemable points whenever you use the card.

However, credit cards can hurt your credit profile if you fail to meet your debt obligation.

Choosing Your Best Option

The ideal card for you depends on how you want to use your card, your spending habits, and where you’ll use it. Some people claim it’s safer to use credit cards online due to their security features than using debit cards.

Others say credit cards are great because of their reward programs, but some debit cards now have features that can rival credit cards in this department. Ideally, it depends on what you want. But if you’re striving to avoid credit card debt, then you should stick to debit cards.

Pick Your Best Card!

Both credit and debit cards are great options, and it all depends on your spending habits. Take the time to understand how both work and the benefits each offers. It also helps to look at the fees, features, and terms of using the card.

Make sure you’re comfortable with whatever card you use, but you can have both of them.