At its simplest level, here are the differences between credit and debit…

Credit – spending money you don’t have.

Debit – spending money you do have.

A very subtle but distinct difference.  Most commonly, you probably hear about these in the form of cards: credit cards and debit cards.  Let’s look closer at each of them…

• Credit Cards – You’re probably familiar with several major credit card companies out there: Visa, Mastercard, Discover, and American Express are some of the biggest.  With a credit card, you can make purchases at just about any location but you’re not actually the one paying for it.

Don’t get confused young grasshopper.

It’s actually the credit card company that is paying for that purchase and you have a contract with them saying you will pay them back.  You’re essentially giving the credit card company an I.O.U. for your purchase.  So when you use a credit card, you are spending money you don’t have. 

• Debit Cards – A debit card looks exactly the same as a credit card and also probably has either a Visa or Mastercard logo on it.  But the distinction is it probably says something like “check card,” “debit card,” or “bank card.”  This is because a debit card is connected to your actual banking account.  So when you make a purchase, that money is subtracted right out of your bank account.  Therefore, you obviously better make sure there is money in that bank account if you’re going to use a debit card! 

YOUR 2 CENTS: What other questions do you have about the differences between a credit card and a debit card?

Related posts:

1. Can You Go Into Debt With A Debit Card?
2. When I Swipe My Debit Card At A Store, Does It Make A Difference If I Put In My PIN Or Just Sign For It?
3. Should I Get A Credit Card?
4. What Kind Of Payment Should I Use When Making Purchases?
5. What Type Of Banking Account Should I Have?