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Credit Card v/s Debit Card

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Credit Card Versus Debit Card

Credit and Debit cards may look a great deal alike. But actually they have a lot of differences. Not knowing the characteristics of each can create some difficulties.

Credit Cards

To begin with, not all credit cards are alike. So it pays to shop for the terms that you need in interest rate, functions, and benefits. Additionally credit card companies themselves calculate charges and apply benefits in different ways. You need to read the disclosure's fine print to determine how your particular card works.

When selecting a card, you need a card to fit your purpose. Perhaps you need a card as a convenience and you plan to pay the entire balance every month. In this case bonuses are more important than the interest rate. On the other hand, perhaps you tend to carry a balance and therefore need a low interest rate. Maybe you want a card that lets you pile up purchase points or frequent flyer miles. These are factors to consider when choosing a credit card.

Another consideration is that bonuses may have drawbacks as well as perks. Flyer mile cards, auto discount cards, and such are not in business to lose money. They may have higher interest rates, enrollment fees, limiting features, or benefits paying only after a selected plateau. Bonuses are not the only area requiring that you check the fine print. Sometimes that "low interest rate" is an introductory offer only. In other cases if you are late on your payment, low rates disappear for future purchases.

The bottom line is you need to know the terms before agreeing to the card. You should know as a minimum:

The annual percentage rate

Grace period to pay the full balance without being charged interest

If there are any annual fees

How finance charges are calculated

If there are any transaction charges for such things as balance transfer, late payments, cash advance, going over your limit, etc.

Most consumer advocates agree that you should also be on the lookout for one additional sentence: "We reserve the right to change the terms of this agreement."

Debit Cards

By far, the use of the debit card is justified because there is no interest accrued against its use. There are usually no fees if you are careful where you use it. (Look for this perk when getting your debit card). There are also minimum concerns about repaying the purchase because the money is automatically withdrawn when you use it. Debit cards look like a credit card and to a certain extent act like one specially if someone won't take your check. But because the amount comes straight out of your account, you may have a financial fiasco if a debit card falls into the wrong hands or you do not immediately deduct transactions from your checking account.

Unlike automatic teller machine cards that require you to enter a personal identification number, debit cards look like credit cards, but do not require PINs, and can be used very easily at any cash register. But, as mentioned, the money for the transaction is immediately transferred from your checking account. If a thief gets your debit card, or even just the account number of your debit card, they can clean out your account along with any overdraft protection. This might also mean that checks already written probably will not clear.