How Do Debit Cards Work? - TechCarding

How Do Debit Cards Work?

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Your debit card is basically like a plastic check: When you make a purchase, it takes the money directly out of your bank account. So, if you try to spend $500 but only have $250 in your account, your transaction will be declined. Because the money is taken from your account as soon as you swipe, you won’t get a bill and you won’t pay interest. You might, however, face overdraft fees if you spend more money than is in your account. Debit cards also work as ATM cards, allowing you to take cash directly outof your bank account.



How Do Credit Cards Work?

Your credit card, unlike a debit card, is like a loan: When you open a credit card, you’re approved for a certain line of credit. Also known as a credit limit, a line of credit is how much you can spend before your card is “maxed out” and can no longer be used for purchases. Your credit limit is based on your credit history and income; the stronger those are, the more the financial institution trusts you and the higher your credit limit will be. Each month, you’ll get a bill for the amount you spent. Though you’re only required to cover the minimum payment (and not the whole balance) by the due date, you’ll pay interest on whatever amount remains. Because credit card interest rates are usually very high, we recommend paying your bill in full each month to avoid interest fees completely.

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