If you’re holding plastic in your purse or wallet, you may think all plastic is alike. Although there are similarities between debit cards and credit cards, there are also some major differences. When considering which to use, debit card versus credit cards, you may want to think about a few things.
Credit cards are financial tools which allow you access to revolving credit through a lending institution. This money must be paid back, often with interest.
Debit cards are financial tools which allow you direct access to money you have deposited into your own bank account. You are limited by the funds available in your bank account.
Some financial experts feel debit cards are at a major disadvantage when compared with credit cards. Here are some of the disadvantages observed by financial experts:
Access to your bank account: Debit cards use money you have deposited into an account. Therefore, if your card is misplaced or used by someone other than an authorized user, they could easily wipe out your account without your knowledge. Credit cards, however, offer you a layer of protection in that you are billed monthly. This may mean someone can spend a good bit and you may not know it until your account goes through its next billing cycle.
Fraud protection: Debit cards have limited fraud protection compared with credit cards. This becomes a serious disadvantage if the debit card has been lost or stolen and it’s not reported right away. You can contact your bank to find out what protection is available and what your liabilities are in the case fraud has occurred. Credit cards have clearly spelled out the limit to your liability should your card be used by non-authorized individuals.
Merchant disputes: You have fewer options regarding disputes with a merchant with a debit card than you do with a credit card. Because the money comes directly out of your account, the merchant has your money already. Also, the money involved in the dispute will be withheld until the dispute is ruled in your favor, which could cause other major problems with your account. Credit cards allow you a period of trial before payment is made. Most credit card companies allow you start a dispute and will withhold payment until the dispute is satisfactorily resolved.
Track spending: Debit cards make it difficult to keep track of what you’re spending. You may forget to write down a transaction which can throw your entire account into an overdrawn tizzy. Credit cards also have the ability to bunch like charges together so you get a better idea of where your money goes.
Credit history: When you use your debit card, it isn’t reported to the credit bureau and will thus not affect your credit history. This means your good habit of paying your telephone bill each month with your debit card will not help your credit score. Using credit cards, on the other hand, will help you build good credit.
There are advantages to using a debit card, as well, including not running up unsecured debt and not having to pay interest on what you spend. However, for most people these two advantages do not outweigh the many disadvantages when comparing debit cards with credit cards. Whether you choose to use either, or both, is a decision you and your family will want to make based on your knowledge of each.
