The Debit Card vs. The Credit Card

To the unsuspecting eye, they are the exact same thing. Both are small, rectangular pieces of plastic.  Both have a brand logo.  Both scan when you buy something at the store. But, under that plastic skin there are indeed some differences. This post will help us explore the key differences between credit cards and debit cards. Credit Card and Debit Card Advantages and Disadvantages The Debit Card Quick Fact: When you use a debit card (signature based or PIN based purchase), your charge is withdrawn directly from your bank account. Advantages: Makes credit card debt an impossibility . Possible to get cash back.  As an example, PerkStreet Financial offers 2% cash back on every purchase. Doesn’t require a credit pull, so you can get one with a poor credit score. Psychologically more painful to watch. Translation: you may spend less.  If you look at your bank statement and have a bunch of debit card withdrawals, you’re more likely to adjust your spending.  However, with a credit card, when your bill comes at the end of the month, it’s too late if an adjustment is necessary. Disadvantages: Overspending can be costly .  Your bank may charge you around $35 if you overdraft.  However, if you use your card multiple times before recognizing the problem, you’ll overdraft multiple times. More difficult in situations that require a reimbursement .  It’s not unusual to find yourself in situations where you pay for something only to get reimbursed later.  That is simpler in a situation where you have a credit card because you can get your reimbursement before the bill arrives. Harder to dispute a charge . See below. The Credit Card Quick Fact: When you use a credit card, your purchase is paid by the credit card company.  At the end of your billing cycle, they’ll send you a bill for everything you’ve charged in that time period. Advantages: Opportunity to maximize credit card returns and rewards. With a debit card your best chance is to get 2% back.  Some credit cards will allow you to get even more in return for your purchases. Credit card sign up bonuses. When you sign up for a credit card, they’ll often give you something as an incentive.  Sometimes that incentive is worth hundreds of dollars.  As an example, the Chase Sapphire Preferred card is offering 50,000 bonus points to sign up for the card.  With that you can get $500 worth of gift cards or $625 worth of travel. Ability to float balances. You’ll get to eek out a little more interest as you don’t actually pay your balance until 45 days or more after you actually purchased an item. Extra benefits. Credit cards offer benefits like 0% foreign currency exchange and car rental insurance.  If you travel much, these can make a big differences. Disadvantages: Credit card debt is one of the leading causes of financial problems .  7 out of every 10 families probably have a credit card debt horror story.  That many are probably living one as I write.  If you have been in credit card debt or have credit card debt problems , then the credit card is not a good choice for you.  Interest and fees will destroy your finances. You disassociate yourself with your money .  Sliding the plastic can be too easy sometimes.  This may mean that you’ll spend more money with a credit card than debit card. The Biggest Difference between Debit and Credit The biggest difference comes when you are dealing with fraudulent purchases, damaged items, and a stolen card. When you buy something using a credit card, you are covered under the Fair Credit Billing Act.  As such, you will not be held liable for fraudulent purchases, damaged goods, and products that were never delivered. While there is some protection for debit card purchases (Electronic Transfer Act), you do have more liability.  When you notify your bank within two days, your liability is limited to $50.  However, between two days and six days your liability could increase to $500.  Waiting more than six days could mean you have no coverage. What if there is a problem with your purchase? MSN Money says that the customer needs to contact the merchant and work it out before contacting the debit card issuer.  You may just get a store credit or gift certificate.  That certainly leaves you with a little more liability.  With a credit card company, one call to the credit card company will often result in a cancellation of the charge so you will not be billed for the purchase. Is there a way to reconcile the difference? Our family credit card policy is that if we’re spending less than $100, we pay cash.  We don’t actually use debit cards at all, but opt for cash for smaller day to day purchases.  If the purchase is over $100 (for a single item), my wife and I agree on the purchase before going to the store.  We put that charge on a credit card.  Anything expensive or electronic goes on a credit card for the extra warrantee and coverage.  A debit card user could have a credit card to use for large purchases only. Do you use a debit card or credit card?  What are your thoughts on the differences? Photo by  Andres Rueda Related Articles: We’ve Earned $73/month Cash-Back From Our Debit Card 2% Cash-Back Rewards Debit Card Reviewed 401k Debit Card – Thoughts The Best Pre-Paid Credit Cards & Who Should Use Them $25 Bonus For Opening PerkStreet Account Offermatic Review: An Easy Way to Earn (More) Rewards Craig is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap , a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night. The articles on this site are for entertainment purposes and should not be taken as financial advice. Please contact a financial professional for specific advice regarding your situation. Also, many of the CPF articles help us pay the bills by using affiliate relationships with Amazon, Google, eBay and others. Find out more here .

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The Debit Card vs. The Credit Card

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