What is a fundamental difference between a credit card and a debit card?

The distinction between a credit card and a debit card primarily revolves around the source of funds used for transactions. A credit card enables you to borrow money from the card issuer up to a certain limit, which means you can make purchases even if you do not have sufficient funds in your bank account at that moment. When you use a credit card, you are essentially taking out a short-term loan that must be repaid later, typically with interest if not paid off within the billing cycle.

In contrast, a debit card is directly linked to your bank account. When you make a purchase, the money is immediately withdrawn from your available balance. This means you can only spend what you have in your account, which helps in managing your finances and avoiding debt.

This fundamental difference underscores the varying capabilities and financial responsibilities associated with each type of card. Understanding this concept is crucial for effective financial management, as it influences spending habits, budgeting, and credit history development.