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Debit Vs. Credit Cards

Debit Vs. Credit Cards

 

Debit and credit cards have advantages and disadvantages. In the end, it comes down to what you’re most comfortable with. Here are some of the features and potential drawbacks of each.

Debit cards can be beneficial if you prefer to pay cash but don’t like to carry cash with you. This is because when you use your debit card the money comes directly out of your checking account. If they are stolen, most debit cards now limit the amount you can be held liable for once you’ve notified the bank. They are good for people who want the convenience of a credit card without the temptation to spend more than you have. Especially since they are accepted in the same places credit cards are.

You may also be able to earn points, perks, or cashback by using your debit card if you get one from a bank that offers such a promotion. But, there are a few drawbacks to debit cards. If there’s a problem, with the use of the card or an item you’ve bought with it, it’s up to you to resolve it. The bank probably won’t go to bat for you on your behalf, although there may be some exceptions. You must also safeguard your PIN since anyone with the number can use your card. A smaller drawback to debit cards is that if you use them to guarantee a hotel room or to leave a deposit when renting equipment, merchants will sometimes put a hold on a fairly large sum of money. This makes the money unavailable in your account until the hold is cleared! That’s fine if you have a large balance and don’t need access to the money. Otherwise, it could be a problem.

Credit cards, on the other hand, generally do have extra protections that come with them. If you have a problem with a charge or with something you’ve purchased, you can usually dispute it and the credit card company will attempt to resolve the situation between you and the merchant. (This doesn’t mean that if you change your mind that you can just say you didn’t buy the item through — chargebacks are a nightmare from the merchant’s point of view, especially ones that are done without good reason.)

Credit cards often also come with rewards programs that can earn you cashback or gift cards. Also, they are accepted at places that debit cards aren’t. A good example is car rentals. However, like debit cards, there are a few drawbacks to credit cards. The biggest one is interesting. You will be charged interest if you don’t pay your balance in full each month. These can range anywhere from just over 0% to 30% or more. That’s a huge drawback because you could be paying up to 30% more for every item you buy. Not just once: you’ll pay again and again a month after month until you finally pay it off. If you only make the minimum payments and have a balance of several thousand dollars, it could take you DECADES to pay it off.

The bottom line is that you have to choose what’s best for you based on knowing your spending habits. Also, your willpower, strength, and how important having extra protection might be to you. I used to be a debit card junkie. That is until I ran into a snafu with one relating to an unauthorized charge. Now I do something that so far seems to combine the best of both worlds! I use a credit card for everything and have the balance paid automatically in full. This comes from my checking account each month. So, it’s sort of like a delayed-debit card with the extra protection of credit.

View Comments (3)
  • I used my debit card exclusively until I noticed my bank was charging me fees for it on the back end. Almost $1.50 per debit charge. When I switched over to the Visa Debit card, that went away and I’m grateful for it!

  • Most people now use their credit cards just as often, if not more often, than their debit cards. They justify this by citing the “rewards” programs card companies offer. But can you really put a price tag on going into so much debt? Actually, you can: it’s called the interest rate! Seriously, here’s a tip: always keep your debit card physically on top of your credit card in your wallet. You’ll be more tempted to use it that way. The rest is just common sense: Use your credit card for things like online purchases and securing hotels and car rentals, and pay the bill as soon as it arrives. Otherwise, use your debit card. Why spend money you’re not sure you have?

  • That’s why I like charge cards (like American Express), they work like Credit Cards, have the same kind of protection, and you’re pretty much forced to pay off the entire balance every month, unless you specifically request to pay it off over a period of time. I have switched from using my debit card for almost everything (large purchases excluded) to using the AmEx Gold, it comes with rewards, and does have some perks that makes the annual fee worth it (discounts on lots of things). It just takes discipline to remember that while your balance in your bank stays high for an entire month, you do have to pay everything you accumulated at the end of that month.

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