The convenience of plastic in the form of debit and credit cards is hard to beat. They both offer advantages but have significantly different features and uses. Here's what to consider when deciding if you should use a credit card or debit card.

Credit or Debit? What's the Difference?

Most banks and credit unions issue both debit and credit cards. They also look alike and belong to the same networks such as Mastercard or Visa. However, there are important distinctions between the two.

A credit card is based on a loan from the issuing entity and represents debt to you — the card user. A debit card is self-funded: you make deposits to the bank or credit union and can access that value at any time using your card.

In other words, a credit card forces you to take on debt, while a debit card requires you to pay for purchases of goods and services with money you already have.

Advantages of Credit Cards

Credit cards offer many advantages to you as a consumer. Although different cards may have different sets of terms and conditions, these advantages may include:

1. Building your credit score, which increases your chances of qualifying for other loans
2. The ability to borrow funds to make purchases even if you don't have the cash on hand
3. Card incentives like reward points, airline miles or cash back
4. Additional warranty coverage on merchandise above what is offered by the product manufacturer
5. Insurance waiver coverage for car rentals
6. Reduced liability for lost or stolen cards
7. Dispute privileges for goods damaged, stolen or lost during shipping

Advantages of Debit Cards

Debit cards also offer distinct advantages which may include:

1. No annual fees associated with a debit card
2. Reduced chances of falling into debt
3. Avoiding interest charges since you are drawing on your own savings balance.
4. Automatic transfers between accounts
5. Interest-free cash withdrawal from ATMs and points of sale

Like credit cards, terms and conditions may differ between debit cards, so it's important to understand which advantages apply to your specific card and which don't.

There is no best card for everyone. Instead, the best type of card depends on your unique financial situation, credit history, comfort with debt, what you're using the card for and what, if anything, you’d like in return for using it.

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