What Is a Debit Card?
Debit cards offer the convenience of a credit but work in a different way. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their bank and it is transferred to the merchants account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through. For this reason, it is important to keep a running balance of your checking account to make sure you do not accidentally overdraw your account. It is possible to do that with a debit card. You will have a PIN to use with your debit card at stores or ATMs. However, you can also use your debit card without a PIN at most merchants, you will just sign the receipt like you would with a credit card.
- A debit card is tied directly to your checking account.
- It can be used where a credit card can be used.
- Generally, you will use your PIN to complete the transactions.
What Is a Credit Card?
A credit card is a card that allows you to borrow money in small amounts at local merchants. You use the card to make your basic transactions.
The credit card company then charges you interest on your purchases, though there is generally a grace period of approximately thirty days before interest is charged if you do not carry your balance over from month to month. Credit cards have high interest rates and are considered a revolving line of credit that you can use again after you pay it down. Your credit card balance and payment history can affect your credit score.
- A credit card is a line of credit you can access with your card.
- Generally, you must sign on these purchases (exceptions may be at the gas pump or for small amounts at a drive-thru window).
- You will pay interest on the purchases made if not paid off in thirty days.
Debit Cards vs Credit Cards
In the past many people felt that you needed a credit card to complete certain transactions such as rent a car or to purchase items online. They also felt that it was safer and easier to travel with a credit card rather than carrying cash or trying to use your checkbook. However debit cards offer the same convenience without making you borrow the money to complete the transactions. It can be difficult to determine when to use a credit card or a debit card. Some argue that a credit card offers additional insurance on purchases and makes it easier to request a refund or a return.
You should carefully read the disclosure information for your credit card to understand the benefit.
Choosing the Best Card for the Situation
It is better to use your debit card whenever possible, because it will prevent you from accidentally falling into the credit card trap. When you can pay cash for most items, you are doing better financially. Some rental car agencies and hotels may still request a credit card over a debit card because they want to have a card where they can bill you for damages to their property. Be sure to check with the hotel or agency before you travel to make sure you can use your debit card instead of your credit card.
Some people will argue for using a credit card for the majority of purchases to take advantage of credit card reward programs. This works if you pay off the balance in full each month.
However, if you do not, you will not earn enough to make up for the rewards. The credit companies offer the rewards as an incentive for you to use the credit card and would not do so if they lost money on the transactions.
- Consider using credit cards for hotel reservations and car rentals.
- For daily purchases, your debit card can help you stick to your budget.
- If you are going to take advantage of rewards, be sure to pay off the balance in full each month.
Protecting Your Credit
Both a credit and debit card have similar risks when it comes to theft. If your credit or debit card information has been compromised, you will need to contact your bank immediately. You should also take additional steps and monitor your credit report to make sure that your identity was not stolen, It is important to check your statements each month to make sure you can identify all charges. The banks limit the length of time that you can report a fraudulent charge on the account. The bank will freeze the account and issue you a new card when you report that the card has been stolen or you see an unauthorized transaction.