What’s the Difference?
A debit card is directly tied to a checking account. Each debit card transaction debits funds from that checking account immediately. You must have the money in the account or the transaction will not be approved. A credit card is not tied to a checking account. Each credit card transaction is a loan from the credit card issuing company with you as the borrower. The bottom line is that a debit card is using your own money and a credit card is using someone else’s money.
What are the Advantages and Disadvantages?
When you use other people’s money there is a price to pay. Interest rates for a credit card can be astronomical not to mention the maintenance fees, late fees, and the like.
Points and commercial perks are cited by a lot of people as the reason they prefer to use a credit card. Don’t be led astray since some debit cards have the same perks. PerkStreet for example offers a debit card with a points system similar to Visa/MasterCard.
Some people argue that a credit card offers more protection than a debit card. If either card is fraudulently used, the transaction has to be disputed with the card’s issuing institution. I have personally disputed a credit and a debit card transaction and didn’t have trouble with either. On another note, if you chose to use a debit card, make certain you don’t carry a large balance on that account since the only thing that can stop a thief from continuing to use your debit card may be a zero balance. You should have multiple bank accounts anyway with some that don’t carry a debit card just in case your debit card account is stolen, you have a backup fund.
You will spend more if you use a credit card. It’s a known fact that consumers spend more money when they use a credit card vs. a debit card or even cash (easier to spend someone else’s money than your own). In fact cash is the safest, cheapest, easiest way to pay and ultimately, you will pay less.
Know your options and pick what’s right for you but most importantly, take control of your money. You are the boss of those greenbacks. Don’t fall for point scams, high maintenance fees, and other hidden costs that will cost you more in the long run. Know what you are spending no matter what type of currency you use.