Credit Cards vs. Debit Cards
The benefits of credit cards are well known. Credit cards allow people to buy now and pay later. They enable consumers to leave their checkbooks and/or cash at home. Currently, purchases made over the phone or on the internet are in most cases only made possible by electronic transaction requiring a credit card. They can also help provide immediate assistance in the face of unforeseen cash shortages. However, for many Americans, the temptation to overspend is great. For some people it may become routine to miss payments, incurring late payment fees and increasing credit card debt. According to Jubilee Counseling, a company that specializes in debt assistance, more than 50 million households carry credit card debt with an average balance of $7000. 1
Individuals tired of getting behind on credit card bills may be better suited to the use of debit cards. At about $400 billion a year in volume, debit cards have joined the ranks of cash, checks, and credit cards as a preferred means of consumer purchase in the US .2 Accepted at most of the same places as credit cards, debit cards ensure that their user will never pile up purchases that may become burdensome later. Drawing on money in the consumer's checking account, the debit card is actually more convenient than using checks in most situations, as there is no requirement to show other means of identification. You can also get cash back when making purchases, an amount that gets added to your total purchase, thus helping to avoid unwanted ATM fees.
Consumers should keep in mind, however, that there is no "float" with debit cards. The amount you can charge to them will be limited to the amount in your account. While many stores are adding scanners that can contact your bank immediately for account withdrawal, many debit card purchases are "off-line" meaning that the charge is registered, and then subtracted from your account within the next several days. It is thus possible to overdraw your account if you don't keep track of your purchases. For this reason, there are still some businesses, such as car rental agencies, that do not generally accept debit cards.
Another important difference between debit and credit cards is that most debit cards do not report to credit bureaus . 3If your main concern is building your credit, then the debit card will not help you do so. On the other hand, if you have bad credit and are having difficulty getting approved for a credit card, then a debit card could be the answer considering that there is no approval process. There are some cards that act as debit cards, yet report to credit bureaus, offering you the best of both worlds.
Debit cards also offer less protection than credit cards in some situations. Because you have already paid for the purchase, it could be more difficult to get money back for defective products. And because the debit card essentially acts as a blank check, someone who got their hands on it could draw money from your account quickly if you don't notify your bank.
In conclusion, there are advantages and disadvantages to both debit and credit cards. Factors such as the size of a purchase, money available in one's bank account, and the amount of debt currently undertaken should all be considered when deciding what method of payment is appropriate. However, as these variables can change quickly, it is advantageous to have access to one of each.
1Jubilee Counseling
2Yahoo News
3Credit Card vs Debt
Other Sources:
Bankrate.com Debt card vs credit cards
Yahoo Managing your credit cards
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