Credit vs. Debit
If you’ve read the comment sections of many of our blogs, you’d see there is a very consistent tug between fans of credit and debits cards. What I’d like to do today is outline some of the major benefits of each so that we can all have a clearer picture of what each actually offers to its users.
Credit Cards
Credit cards, though notorious as being credit ruiners in irresponsible hands, are financial tools. They represent a way to conserve money in between the purchase and payment of a good or service. For example, say you have $1,000 in your bank account. The account is with an online savings bank, so you’re making let’s say… 2% annual interest on it. Thanks to the way credit cards work, you have at least a 30 day grace period between statements and payment cycles. This means that there is anywhere between 1 and 29 days between when you have to actually pay for what you bought before bad interest starts building on it. During that time, your money is sitting in your bank account and getting bigger from accumulating good interest.
The next positive of credit cards are the features and benefits that companies bundle with the account. One example would be American Express’s built-in one year warranty extender. If you paid with a debit card, you would be limited to whatever manufacturer warranty comes with the good (if any), where AMEX will go ahead and extend it on their own dollar. Another example of benefits would be reward programs such as air miles, points, and cash back. If you’d like to learn more, check out my blog on reward programs.
Finally, security is a very good argument in the defense of credit cards. If you lose your wallet or are mugged, you can call your card issuer and have your accounts frozen immediately. In addition, your liability is legally capped at $50; this means that if you don’t realize your card has been stolen and the thief goes on an insane spending spree, the most you can be forced to pay is $50. Although you can have theft protection on debit cards, any purchases made on them would likely take a lot longer to refund, and in the meantime you are physically out that much money.
Debit Cards
Of course, the major benefit of a debit card is it forces you to spend within your means. This is always a good thing because it avoids debt, but can bite you if you accidentally overspend and make your account go negative. The same is true for credit cards, since going over your credit limit is generally an undesirable thing to do, causing finance charges and hurting your credit score.
Debit cards are also starting to get more “reward” programs. For example, Bank of America has a deal with Alaska Airlines so that you earn a certain amount of air miles for each dollar spent on qualifying purchases. Another example would be BoA’s “Keep the Change” program which rounds your purchases up to the next dollar and deposits whatever the difference is in cents into a savings account. The “savings” transferred then get doubled up to $250 at the end of the first period.
The last benefit is you can open, close, and switch banks as often as you want with debit without impacting your credit score. One of the chief annoyances about credit cards is once you open one, you want to keep it as long as possible to build positive credit history. For debit cards and checking and/or savings accounts, switching banks may be a necessity if you move to an area outside their footprint.
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In reality, there are definite benefits to each card and reasons why one might be better for you than the other. If you have a good handle of how much money you can spend and are responsible, a credit card is an excellent way to build your history and be prepared for big purchases and investments in the future. If you are more uncertain about how much money you will have from month to month (this applies to many of us, I’m sure), a debit card may be a smarter choice to make sure you don’t live beyond your means.
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I find it really interesting but at the same time a little scare because i dont want to be in debt.
I find it really nteresting but at the same time a little scare because i dont want to be in debt.
Credit cards are safer and will pay if someone charges on account (lost card, etc.)
Debit cards have no security if you lose card – can be used online in many places without a pin #.
Difference – Debit card goes directly into your checking acct. Credit card you need to keep a record of everything you charge & pay it off monthly – OR you'll have late fees.
I use my credit card, get reward points, & I pay it of monthly. I like having everying on my credit card monthly statements.
I find it really nteresting but at the same time a little scare because i dont want to be in debt
Debt is a scary thing but it is almost inevitable to avoid! Especially in an economy like what we currently have…
I think credit cards are evil
only use credit cards if you can pay them off each month.
DO not buy anything if you cannot afford to pay in cash.
I compare the use of debit cards and credit cards with the use of fire at a campsite. When used properly, the benefits are sweet. When used irresponsibly, the consequences are disasterous.
If you still have to pay the money anyway, why get something just to pay for it later? This can probably be verified by the credit companies but, I heard that 75% or so of the rewards that come with credit cards are never used.
Credit cards are a ways to get credit but truly they make you waste money you don't have
debit cards are good except fort he fact that sometimes they go negative
I think paying with debit is a lot less to worry about.
Great information.
very helpful. Student loans as part of a government initiative helps these students by means of financial aid. The money they earn or receive from parents is sometimes not sufficient for the course they want to pursue and in such cases, student loans remains to be the most viable resort to check out. And with financial groups aiding you to find the most suitable and affordable student plan to meet your living costs while studying, keep the agonizing nights at a bay.
Get a credit card with a cash back feature, and pay it off completely every month WITHOUT FAIL.
This is absolutely the best way to do it. Get the bank to pay you money instead of the other way around.
Good article. I was always curious about the major differences.
With debit cards, if you don't have the money, you can't buy without getting into trouble, because you will overdraft, and then you will be charged an overdraft fee every time the charge is put through for payment; that can get very expensive! I know; I've done it by mistake.
ya same here it is interesting, but i so agree with you
Good article, but it doesn't seem to have many pros for credit cards.
wow.. thats useful. i was thinking of geting a credit card myself
i believe debit is the wise yhing to use. dont use credit cards.
what is the best credit card for a student to start off with?
The Discover Student Card tends to be very popular among our readers. The Citi Student Card is highly rated too.