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Making A Choice: Debit Or Credit

Mar 21, 2008
While only a few years ago there were clear differences between credit cards and debit cards, today those distinctions have been blurred with debit cards that can be used in many of the same capacities as credit cards and vice versa. Both can be used to make withdrawals at ATM using PIN numbers and both can be used at the check outline to make purchases. Of course, there are still some issues like card protection and resolution policies that distinguish debit from credit. The question that many people have is this: "Which is better debit or credit?" After describing each card, we can take closer look at what each has to offer as well as the common downsides to each type of card.

Credit cards allow you make immediate purchases at a store or on the internet using an established line of credit. You simply enter your card's number and the purchase is completed just like that. Now, of course, what you've just bought isn't actually paid for at that moment. If a credit card is authorized by the store, it means that the card is recognized as having sufficient funds to cover the purchase, but actually payment to the establishment may not come for weeks after, even as long as a month. The bill is paid by the card company. You will also receive a bill requiring you to pay back the amount of your balance, or a portion of it. The specific guidelines for payment and other charges will vary with each credit card company.

Most debit cards function in the same general way. You input the number or swipe the card to make a purchase. Like a credit card, the company who issued your card will pay the merchant through whom you made the purchase. Of course, here is the fundamental difference: any money you use with a debit card must be put there by you. You have to have money in your account. Once the balance reaches zero, you cannot use your debit card until more funds are added. Many banks issue debit cards that take the funds directly from your checking account.

Advantages And Disadvantages

Obviously, the main advantage of a credit card is having access to money when you do not actually have the money to make your purchase. Moreover, you have what is generally a reasonable time to pay off the balance, or even just make a monthly payment on the balance. The disadvantage is that with this access comes the temptation to overuse the card and built a high balance. This balance can be hard to bring under control and even with payments, the interest rates and other finance charges can leave you paying on a card for a long time.

With a debit card, the advantage to having one is knowing how much money is in your account already and using the funds there to make your purchase. This means there will be not bills or finance charges. The card functions the same way that cash and eliminates the need to carry cash around with you. You also protect yourself from getting into financial debt by using only the money that you have. At the same time, if you need to make a purchase but don't have the funds on hand, then you are out of luck.

Ultimately, the decision you make about whether to use credit or debit is related to the sort of spending habits you have, what other money sources you have, whether you've devoted money to building savings and other investments to provide financial support when you may need to buy something or not. Choosing between them and deciding whether the benefits outweigh the disadvantages is a matter of personal judgment.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Credit Cards and Remortgagess
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