Credit Card or Debit Card?

Most people have at least one credit card and one debit card in their wallet. Each one has advantages and disadvantages depending on the circumstance of the situation and the amount of spending control of the user.

Credit and debit cards look very similar. All cards have a 13 to 19 digit number, expiration date and a 3 or 4 digit security code. However the functions of the cards are quite different.

A debit card allows bank customers to spend money by drawing on funds that they deposited with the bank. Credit cards allow consumers to borrow money from the card issuer up to an established limit for purchases or cash withdraw.

An advantage of debit cards is they usually have very little or no fees of any kind, unless the user spends more than they have in the account and are charged an overdraft fee. Many users of debit cards get a feeling more like using “real” money.

An advantage of credit cards are the rewards that are offered. These rewards can be in the form of cash, discounts, travel points, etc. Smart consumers who pay off their cards in full each month can profit by using the credit cards.

Additional advantage of credit cards:

  • Credit cards still offer greater liability protection of $50 in most cases of lost or stolen cards. The Electronic Funds Transfer Act gives debit cards the same protection from loss or theft if the consumer reports it within 48 hours of discovery. After 48 hours the customer’s liability rises to $500 and after 60 days there is no limit.
  • The Fair Credit Billing Act allows credit card users to dispute unauthorized purchases or purchases of goods that are damaged or lost during shipping. But if the item was bought with a debit card, it cannot be reversed unless the merchant is willing to do so. What’s more, debit card victims don’t get their refund until due process has been completed.
  • If you need to rent a car, most credit cards provide some sort of waiver for collisions. Even if you want to use a debit card, many car rental agencies require customers to provide credit card information as a backup.

The bottom line is, smart shoppers who can control their spending are probably wise to reap the benefits offered by credit cards for the majority of their purchases. Debit cards protect the frugal from fees and help less disciplined spenders stay within their means.