With the introduction of plastic money resources, credit cards and debit cards, it has been easier to get through payment processes with a swipe of that magnetic strip or simply entering in the digits on our keyboard to make purchases online. The debit card and credit card work similarly enough, and despite the differences being very vast, many people still can’t seem to spot why a debit or credit card may be better to use than the other. Being an informed consumer is an important step in making the correct financial decisions, and knowing whether you should use debit or credit is one of the first decisions you should make.

Where are you getting your money?

The most obvious difference between debit and credit cards is the source of cash from which you are drafting money from while making purchases. A debit card uses your bank accounts as its drawing source. While withdrawing money from an ATM or fueling up your gas tank, the money taken or paid is drawn out of the savings or checking account connected with that card. When dealing with debit cards, the limit on the money you use is exactly how much you have in your bank account.

Credit varies greatly from the use of debit as you can use money that you don’t actually have possession of, yet. The credit card lender borrows money from a larger bank, and your credit card institution allows you to use that money, up until you reach your credit limit. Credit is not connected to any previously established funds in your bank account; therefore, a credit card may allow you to make purchases you perhaps couldn’t make otherwise.

Liability can be a Problem

There are liability issues when using debit cards versus using a credit card. Credit cards are federally governed to limit liability to $50 dollars and tied by law to investigate any fraud suspected by the credit card’s name holder. A debit card is not always this simple as there are no federal laws insuring low liability rates for debit card holders. Most debit issuers may advertise $0 liability, yet reading the small print shows that this is only to those that qualify. In actuality, most will give $50 liability to the owner if fraud is spotted within 2 days and up to $500 within 60 days of being spotted.

Bank it or Loan it?

So what type of card should you use – debit or credit? This all comes down to the way you handle your own money. Many are scared that the use of credit can lead to financial failure if used too early in life, so many rely on only what they can afford to purchase with debit. This is an excellent choice if you have the money readily available to support your life and can keep tabs on your checking and savings bank accounts. Those not keeping track of their accounts may provoke hefty overdraft charges that will build up for days until they are paid off. Overdraft charges can be a killer, and most banks will typically hit you with a $30-$40 each time you commit an overdraft.

Credit offers options for those that might not be able to pay for something in full at the time of purchase but will be able to pay off that debt by the time their billing period rolls around. Credit offers benefits to those able to pay their credit bills on time, as well. Your credit score is linked to your credit card usage (as well as many other factors), and this in turn can affect whether or not you will be able to purchase a car or buy a house. The governed liability is enough for some to rely only on credit due to increased personal theft security.

Debit cards also lack the ability to chargeback fraudulent or charges you might feel unfair or not necessary. Using a credit card allows charges you deem questionable to be left out of credit reports until your credit lender fully investigates the issue. In a rare case, the credit card companies are actually on your side when it comes to fraudulent charges.

Credit cards carry much more security, but the fact is they still might not be for everyone. Building up good fiscal responsibilities with debit is an option for those still afraid of credit giants. Either way, depending on your usage, both a debit card and credit card can incur 0% chance of risk or carry huge risks if used impractically.