Credit Cards vs. Debit Cards

By debtconsolidation-us.org – Credit cards and debit cards provide users a way to access their money without carrying around a bulky checkbook or cash. While these cards look identical, how they work is entirely different. Both cards have expiration dates, PIN codes, and a 16-digit card number, but both are suitable for distinct occasions.

Debit Cards

Debit cards are often referred to as “checking cards” because they are tied to a checking account. Whenever you make a transaction using your debit card, the amount of money is reduced from your bank account. Hence, you can only spend the money that is in your account. When using this card for an in-person transaction, the user needs to use their PIN (personal identification number) for approval of the transaction. It is quite simple to get a debit card by applying. Any credit union or bank with whom you have a checking account can issue you a debit card.

Pros

  • No worries of interest or late fees
  • Since you only spend what you have, over-spending can be avoided
  • The debit card uses PIN that provides higher security

Cons

  • The bank charges a point-of-service fee whenever you make transactions via a debit card
  • There are no reward programs offered
  • The dealing is only between the buyer and seller, so there is no protection under the Fair Credit Billing Act
  • After every purchase, the amount in your checking account decreases
  • You are required to maintain a minimum balance

Credit Cards

Credit cards work a bit differently and unlike debit cards, they are not tied to a checking account. They are connected to a financial institution, such as a credit company or a bank. A credit card transaction involves three parties: the buyer, seller and financial institution that has given money to the buyer. When using this card, you will never be restricted to spend the money regardless of not having enough amount in your account unless you reach the credit card limit. It is somewhat difficult to obtain a credit card as the issuing company goes through your credit history and determines if you are worth loaning money.

Pros

  • It is an ideal way to build up credit
  • You can avail additional benefits in the form of airline miles, cash back or other rewards
  • Greater protection for the customer as a financial institution is involved and transactions are covered under the Fair Credit Billing Act

Cons

  • A huge sum of money can be piled up because of late fees and interest
  • As there is no restriction on spending, you can spend more than your means allow
  • If you make late payments, it can affect your credit rating

Conclusion

As you are now aware of the benefits and drawbacks of each card, you can decide yourself what is better and when. Before you reach for your wallet, consider the type of purchase you are making. While debit cards are good for small everyday transactions, credit cards can be used for large purchases or services, including home improvement, automobile repair or online purchase of items.

By admin Posted in Money