Credit Card Vs. Debit Card

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Credit Card Vs. Debit Card
Credit Card Vs. Debit Card (Image: Andres Rueda: Flickr.com, penywise:morguefile.com, kevinrosseel: morguefile.com,roganjosh:morguefile.com, Betsssssy: Flickr.com, holder: morguefile.com)

Credit cards and debits have their distinct advantages and disadvantages, depending on the spending habits of the person using them. The most important factor with both types of cards is that you have the available money to back up your purchases.

Background

A debit card, also referred to as a check card, is a card you receive from your bank to make payments in lieu of a check. Debit cards deduct the amount of your purchases directly from your checking account. Credit cards are used in much the same way, but when you use a credit card you are spending borrowed money. You must pay back the amount you spent on your credit card, sometimes with interest and fees.

You have to make payments on your credit card balance
You have to make payments on your credit card balance

Benefits

Debit cards are more than a tool to make purchases. You can use a debit card to withdraw money from an ATM or check the balance on your checking and savings accounts. Many debit cards now offer fraud protection, so in the event that you lose your card or it is stolen, you will not be held responsible for any charges you did not make.

Whereas debit cards do not send information to the credit bureaus, credit cards do. Your payment history is carefully documented and appears on your credit report. Provided that your payments are timely, this can help you qualify for a good interest rate on such large purchases as a new home or car. It is also prudent to have a credit card around in case of an emergency. Since you can wait to make the payments, you can use a credit card to purchase more expensive necessities, such as car repairs or medical bills that you can then pay off at your leisure.

You can use your debit card at the ATM machine
You can use your debit card at the ATM machine

Drawbacks

Due to the fact that debit cards are convenient and used frequently, it can be easy to accidentally spend more money on your debit card than you have in your checking account. Debit cards have not been able to keep up with the rewards programs offered by credit card companies. Credit card companies, however, cannot match the appeal of the debit card being free to use. It is also much harder to keep track of your spending with a credit card than with a debit card since you only see your statement once a month.

Credit card companies offer rewards such as frequent flyer miles
Credit card companies offer rewards such as frequent flyer miles

Fees

Although debit cards do not require users to pay an interest rate the way that credit cards do, they are not without their fees. If you use a debit card to withdraw money from an ATM that does not belong to your bank, you may have to pay fees to your bank and to that bank that owns the machine. Overdraft fees can quickly add up when you use your debit card frequently and do not carefully monitor your balance. Credit cards, however, carry higher fees than debit cards. In addition to having an interest rate you must pay, credit cards may charge fees and extra interest for using your card to make a cash withdrawal. Some credit cards charge an annual fee for use of the card.

A cash advance will cost you extra in fees and interest.
A cash advance will cost you extra in fees and interest.

Warning

In the event that you accrue overdraft fees with a debit card, your bank may close your account and place you into ChexSystems, which is a computer database of individuals who owe money to banks. If you find yourself in ChexSystems, you will have to wait five years before you can open any accounts with another bank. If you default on credit card payments you will severely damage your credit rating and possibly be sued. In the event that you lose the lawsuit, you risk having your wages garnished to cover the cost of the debt.

Not paying your credit card payments could land you in court
Not paying your credit card payments could land you in court

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