Credit Card Versus Debit
Credit and Debit Cards may look a great deal
alike. But just because it walks like a duck, it just might be a
penguin... or maybe a kangaroo. Not knowing the characteristics
of each can create some difficulties.
To begin with, all ducks are not alike. Guess
what-- not all credit cards are alike, either. So it pays to
shop for the terms that you need in interest rate, functions,
and benefits. Additionally credit card companies themselves
calculate charges and apply benefits in different ways. You need
to read the disclosure's fine print to determine how your
particular card works.
When selecting a card, you need a card to fit
your purpose. Perhaps you need a card as a convenience and you
plan to pay the entire balance every month.
Another consideration is that bonuses may have
drawbacks as well as perks. Flyer mile cards, auto discount
cards, and such are not in business to loose money. They may
have higher interest rates, enrollment fees, limiting features,
or benefits paying only after a selected plateau. Bonuses are
not the only area requiring that you check the fine print.
Sometimes that "low interest rate" is an introductory offer
only. In other cases if you are late on your payment, low rates
disappear for future purchases.
The bottom line is you need to know the terms
before agreeing to the card. You should know as a minimum:
- the annual percentage rate
- grace period to pay the full balance
without being charged interest
- if there are any annual fees
- how finance charges are calculated
- if there are any transaction charges for
such things as balance transfer, late payments, cash
advance, going over your limit, etc.
Most consumer advocates agree that you should
also be on the lookout for one additional sentence: "We reserve
the right to change the terms of this agreement."
Debit cards have doubled in the last two
years, according to the research firm Cardweb.com (See link
below). Similarly, 20% of credit transactions are now done with
a debit card. As reported by Cardweb.com, "... debit cards are
still used mostly for ATM cash withdrawals,... usage for
merchandise purchases was also common, as 40 percent of
households with debit cards used them monthly for merchandise
purchases, according to BAIGlobal’s studies. Grocery stores, gas
stations and discount stores were the most common types of
establishments where purchases were made. "
By far, I support the use of the debit card
because there is no interest accrued against its use. There are
usually no fees if you are careful where you use it. (Look for
this perk when getting your debit card). There are also minimum
concerns about repaying the purchase because the money is
automatically withdrawn when you use it. Debit cards look like a
credit card and to a certain extent act like one specially if
someone won't take your check. But because the amount comes
straight out of your account, You may have a financial fiasco if
a debit card falls into the wrong hands or you do not
immediately deduct transactions from your checking account.
Unlike automatic teller machine cards that
require you to enter a personal identification number (PIN),
debit cards often look like credit cards. And if used as a
credit card, they do not require a PIN, They can be used very
easily at any cash register. But, as mentioned, the money for
the transaction is immediately transferred from your checking
account unlike a credit card. If a thief gets your debit card --
or even just the account number of your debit card -- they can
clean out your account along with any overdraft protection.
That may also mean checks already written probably will not
clear. With a credit card, the worst case scenario often is
only $50 liability.