Debit Vs Credit Card Analysis

Every time you use a credit card, you are actually borrowing money that is made available to you by a bank or other financial institution. The institution pays the debt to the vendor and, in turn, you pay the money back to the institution. By signing up for a credit card, you agree to pay back the money that you borrowed, in addition to any interest drawn on the amount you borrowed.

Odds are, you have a debit card in your wallet or purse right now, since many ATM cards are programmed to have debit options. Issued by your bank, debit cards take funds directly from the money that you have in your bank account – acting much like a check, just faster. With a debit card, you don’t have to carry cash or checks, and it is very convenient to shop at a variety of places including gas stations, grocery stores, restaurants and retail stores. They provide instant access to your money and are accepted worldwide.

Debit cards are used much like credit cards, meaning that the store where you are shopping ‘swipes’ them and you are normally given the option of signing your receipt instead of using a required PIN number (you can enter your PIN number if you prefer). You also typically do not have to show a picture ID.

A few reasons why you should pay with credit:

When you shop online. When you buy something from the internet you would like to use your credit card because the funds don’t come immediately out of your checking. This way if you have any disputes with the online merchant you can call up your credit card company and get the charge removed. This also works to protect your cash balances because if someone somehow gets a hold of your credit card number they can only ring up a bill that you don’t have to pay (because you didn’t charge it), but if they get ahold of your debit card number they can cause you one major headache.

When you buy a big-ticket item. You might not be aware of this but most credit card issuers offer an extended warranty on anything you buy with credit. Obviously you’ll want to review your credit cards terms but this can come in handy as some credit card issuers automatically double the manufacturers warranty.

When you want to build your credit history. Using your debit card won’t build you any credit but if you use your credit card and pay it off on a monthly basis you’ll start to build your credit up quickly.

When you want to rent a car. Many credit cards offer damage protection coverage when you pay for a rental car with them. This offers the same coverage as the damage insurance that car rental companies will try to sell you. Pay with your card and save yourself some money.

You want to earn points. Most credit cards nowadays offer reward points which can be redeemed for cash, gift cards and even airline tickets.

A few reasons why you might want to pay with Debit:

You want cash. If you want to get cash quick without paying any ATM fees then just use your debit card and ask for cash back at the merchant. Quick, free and easy.

You want to avoid interest charges. Obviously if you use your credit card you will likely be charged interest for any purchases you put on your credit card. This is not the case when you use your debit card because the funds are transferred automatically out of your checking account.

You don’t want (yet another) bill to pay. Let’s face it, we’re overrun with bills every single month. If you want to streamline your life and just don’t want to have yet another bill to pay then use your debit card. If you don’t have a balance on your credit card then you don’t get a bill. Good stuff!

Which Is Better?

Maybe you still don’t see much difference, besides where the money comes from and when you have to pay up. So which one is better to use? It depends upon how careful you are with your card and why you are using the card.

The features that make debit cards convenient – instant access to your money, lack of a required PIN number and not having to drag out your photo ID when you use it – make fraud that much easier. Unless reported quickly, theft of your debit card can quickly devastate your bank account. This is where you begin to see the difference.

Credit card companies are held to strict liability laws; the law limits consumer liability for credit card fraud to $50. For example, if you notice suspicious charges on your credit card statement such as double billing or an incorrect charge, the credit card company is obligated to investigate if you send in a written request within 60 days.

For debit card fraud, your liability is $50 if you notify the bank within two days of noticing the fraudulent charges. After two days, your liability increases to $500, and up to your entire account balance after 60 days. So, if you report the theft after two days, you can be held responsible for paying for purchases or charges that you didn’t make. Although many banks have started to implement voluntary plans to limit customer liability to $50, there is no federal law regarding this issue.

One final advantage of credit cards is that they are helpful for consumers seeking to establish or reestablish an attractive credit history. Responsible credit card usage can improve one’s credit rating, which will improve your chances of obtaining favorable credit terms (low interest rates, low fees, etc.) for automobile loans, mortgages and personal loans.

Finally, a debit card is not just a card – it’s ready access to your money. Be as careful with it as you would with your wallet if it contained the contents of your entire bank account.

Thank you 