Credit or Debit?
Ever stand in the register aisle and struggle deciding how to make the payment for your purchase? When the cashier asks you, “debit, or credit?” the decision is an arduous one. Let’s take a look out the differences and similarities, as well as the pros and cons, so maybe your transaction will go more smoothly next time.
The Difference?
The word "debit" is usually indicated for debit cards.
Debit cards provide you direct access to the money you readily have in your own bank account. It’s similar to writing a check, but without the hassle. They allow instant withdrawal of cash at ATMs or at stores with no extra charge. There’s an overdraft fee option, wherein if you exceed the amount on your card, you’ll be charged a specific amount for this excess money you’ve used (you can waive the overdraft option if you’d like, so your card would instead be declined).
- For example: If a jacket costs $10, you’ll need at least $10 on your debit card to complete the payment. If you have $10 in your account, you swipe your card and you’re purchase is complete. However, if you only have $5 in your account and over-drafting is enabled, you complete the purchase, but you owe the bank the overdraft fee of $30.
The ornate lure of the credit card.
Credit cards grant you money borrowed from a bank, which acts as currency. You accumulate debt, which is privy to interest, but you’re given ample time to pay the money back to the institution.
- For example: Here, if you pay for a sweater that costs $100, the money in your bank account is irrelevant, as you’ll be extracting money from a bank instead. At the end of the month, you’ll receive a credit card statement showing your $100 debt — but you’ll have the option of paying it entirely or only a portion of it. If you pay $50 now, the other $50 will be added to your balance for the next month. If the interest rate is 10%, you’ll owe an additional $5 in the next month (so total $55).
The Similarities?
Both debit and credit cards require you to swipe the card when making physical purchases, and both can be used for online purchases by inputting the card numbers. Both lessen the load of your wallet by preventing you from holding cash. The look and feel of the cards are similar – both plastic, both small and rectangular, and both extremely tempting to use.
The Better Card?
This answer is predicated upon how you use the card and how vigilant you are with your card.
Though debit cards offer you convenience, such as immediate access to your money, they pose a threat to your bank account when stolen. Meanwhile, credit cards provide a different type of convenience, wherein you have the capability for buying an item now with borrowed money, but with interest fees — in other words, you’re given more consumer protection. Credit cards are more useful for large or fragile purchases. Another advantage of credit cards is that you can formulate credit, which is useful for buying a home or car. However, credit cards quickly rack up debt and can direct you into a financial spiral quickly if not frequently monitored and paid for. So while both credit and debit cards offer similar risks to your bank account, the card that rises as the champion truly varies by consumer.
To learn how to avoid credit card late fees, click here. And why not read about how to protect yourself from card skimming at gas stations/ATMs here.
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