Debit versus Credit Cards: Which is Right for You

Debit cards are becoming more popular as an alternative to carrying cash or even credit cards. With debit cards on the rise we thought it was time to see how debt cards stack up against credit cards. To help you understand how both cards work and to help you decide which is right for you, we have created this article that compares the two cards.

Debit Cards

A debit card, also known as a check card or bank card, works just like an electronic check. This means when you use the card the funds are taken directly out of your bank account. Debit cards are a convenient way to pay for purchases quickly, without having to write a check or making sure you are carrying enough cash. Debit cards can also allow you to withdraw cash from an ATM, and some merchants can also offer you “cashback” when you make your purchase. For most transactions, a debt card can be used instead of writing a check. Debt cards withdraw the funds from your bank account when the card is used which, means the transaction if finalized right then and there. You don’t pay for it later like with a credit card.

Benefits of Debit Cards

If you have had credit issues in the past, you might find if difficult or impossible to obtain a credit card. But you still might be able to get a debit card. This will still give you the convenience of using plastic without having to get approved for a line of credit. Since debit cards are not a line of credit, this prevents the user from racking up debt as a result of using the card. There are also no interest charges, late fees, or fees exclusive to credit cards. Debit cards are accepted by merchants without having to show your ID, which makes the transaction faster. Unlike with credit cards, there are usually no fees for making a withdraw from the ATM if you use your bank’s ATM.

Possible Debit Card Concerns

If you don’t have enough funds in your account, you can overdraw the account. There are usually costly fees associated with an overdrawn account and this is something you want to avoid. To avoid these fees, you just need to manage your account and know how much money you have in the account.

In many places, laws protect the consumer from fraud much less than with a credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card (typically $50), which is often waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. The consumer also has a shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card, whereas with a credit card, this time may be up to 60 days. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer’s bank account, and the consumer will have no recourse.

Debit Cards vs. Prepaid Cards

Finally, it’s important to understand the difference between a debit card and a prepaid card. Both work about the same, but there is no bank account tied to a prepaid card. As a result, you can qualify for a prepaid card even if you’ve been denied for a checking account.

Credit Cards

A credit card is a card that allows you to buy goods and services based on your promise to pay at a later date. The issuer of the card gives you a line of credit from which you can use to make purchases or even use for a cash advance. Each month, the credit card sends you a statement that contains all of your purchases, any outstanding fees, and the total amount owed. In order to obtain a credit card with a decent interest rate, you have to have good to excellent credit. There are some cards available to those with not so good credit that can help build your credit history.

Benefits of Credit Card
The main benefit to using a credit card is convenience. Compared to debit cards and checks, a credit card allows small short-term loans to be quickly made to a customer who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card. Credit cards also provide more fraud protection than debit cards. Many credit cards offer rewards such as points, which may be redeemed for cash, products, or airline tickets.

Carrying a credit card is also convenient for some because it eliminates the need to carry cash. Some cards offer special interest free rates which allow you to make purchases for a period of time without incurring interest. If you are responsible with your credit card and manage your account properly, you can also build a good credit history. By paying your bill on time, your credit score will go up and you might also be eligible for a lower interest rate or a higher line of credit.

Possible Credit Card Concerns
Interest charges are one big deterrent to using a credit card. If you don’t pay your balance in full each month or your card doesn’t offer an interest free rate, you will pay interest. If you miss a payment you will mostly likely get your interest rate increased and be hit with a penalty fee. Interest charges can be costly and often cause people to go into debt with their credit cards. Credit cards usually charge a variety of fees such as late fees, over the credit limit fees and annual fees.