Finance Globe
Debit Cards vs. Credit Cards
This might be common knowledge to many, but there are people who have asked me what the differences are in debit cards and credit cards. Also if you want to teach your kids, below can be a reference guide to discuss the differences between a debit card and a credit card.
Debit cards look and feel similar to credit cards. They are issued by major banks, such as Bank of America and Wells Fargo, and both usually belong to the major card networks, such as Visa and Mastercard. However this is a few major differences that makes it a debit card instead of a credit card. A debit card is directly linked to and draws money from your bank account to pay for your purchases almost immediately. The case when paying for a credit card is you are using your own money to pay for your purchases. Some people prefer debit cards because its spending their real money and they feel it can help them control their spending.
A credit card is a tool that lets you borrower money to make purchases with the understanding that you will pay back the full amount at some point in the future. The credit card company creates an account with a credit limit that allows you to pay for purchases with borrowed money. You can’t charge more to your card than your credit limit allows, but you can decide how much of your balance you will pay off each month. If you do not pay off the credit card balance, the credit card company charges you interest on the outstanding balance. People prefer credit cards because it offer you flexibility, but also financial responsibility. Lastly, credit card companies usually offer you rewards for making purchases on their credit card.
Both debit cards and credit cards serve a purpose and be sure to understand your specific card before making any major purchases.
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As an addition to the difference between Debit Cards and Credit Cards is the liabilities in case of loss, identity theft and so on. Credit cards offer at a minimum a protection to you for any loss over $50 will be covered (if reported to lender in accordance with their terms and conditions) and generally the lenders will remove the "disputed" transaction(s) while investigating the matter along with cancelling the account as may be required and issuing a new one. In the case of Debit Cards you are required to report to your bank or credit union the loss and they make a determination on whether the funds lost will be immediately be returned along with the investigation of the situation which can be a problem if your checking account has been compromised. Besides the rewards offerings today for credit cards, is the ever present threat of loss and and your credit card protections far surpass the debit card protections. Many people like Debit Cards as a method of controlling their spending as it is real time (today). However, if your checking account is compromised you may find it affects your every day life ability to pay for things such as mortgage, rent, utilities, food, vehicle gas and the like. Think long and hard on this matter. Remember, you can usually make more than one payment a month to most lenders so you can essentially use your credit card like a debit card and keep your debts to a minimum. Speaking with experience, it is a lot easier to deal with a credit card problem than your bank/credit union who controls your checking accounts. Why the US Congress did not set up equal protections for credit and debit products is beyond me and makes no sense in today's environment.
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