Visa reported that for the first time ever debit card purchases surpassed credit card purchases in the last three months of 2008. It would seem that consumers are finally getting on the band wagon that spending more than they can afford is not the best route for healthy finances.
Which card you should use when making purchases has been a topic of conversation for some time and many people lean decided in one direction while others could care less. One thing is certain, since 2003 Americans have been using plastic in each form more than cash or checks. Obviously the largest distinction between using the two lies in the origination of funds for purchases. Debit cards use money that is already in your checking account while credit cards use “credit” that you will be responsible for repaying at a later date. Here are a few other differences between the two cards.
Differences Between Credit Cards and Debit Cards
Security And Protection. Regulations and policies protect you in the event your credit or debit card are lost, stolen or used by an unauthorized person. While the protection is there for both, the level of protection differs for each card. If your credit card is lost or stolen and you notify your card company before charges have posted to your account you are not responsible for any unauthorized charges. If charges have already posted you will only be responsible for the first $50 of charges. Debit cards offer this protection as well, however you must notify your card issuer with two days of discovering unauthorized charges or the loss of your card. Notifying your card holder within two days limits your liability to $50. If you don’t notice the transaction within two days and report the charge between 2 and 60 days your liability increases to $500, after 60 days your liability could be limitless. In the meantime you are out that cash and even if you are credited the amount in the future, don’t expect the credit to appear in a timely manner.
Zero-liability policies. Visa and Mastercard offer zero-liability policies for credit card holders which means you are not responsible for any charges made when your credit card is not present. This covers online purchases or instances where credit card numbers are entered manually versus swiping the physical card at the merchant location. While zero-liability policies exist for debit card holders, it only applies to transactions that do not require use of your PIN.
Availability of Funds. When using your debit card you must first ensure you have the resources available in your checking account to cover your purchases. Consumers who are not particularly organized may find it difficult to track expenses and risk overdrawing their checking account if transactions are not noted properly. When using your debit card, know that transactions which require a signature generally take up to three days to clear while PIN transactions can clear immediately or within 24 hours.
Credit card purchases generally do not post to your account immediately, however an authorization to hold funds takes place. If you are close to approaching your credit limit using your card on several occasions in a short period of time may result in going over your credit limit resulting in additional fees and higher interest rates being applied to your balance.
Which is better – credit or debit?
It is clear that consumers enjoy the convenience and ease of using both debit and credit cards. Both options have benefits as long as they are used responsibly. The best way to manage your personal finances does not begin with how you pay for your purchases but with your spending habits themselves. If you stick to a budget and live within or below your means both options should serve your purchasing needs sufficiently.
The following is a guest post by DebtKid, who writes about his journey to get out of debt, and achieve financial stability. He runs a small software development company in Seattle and recently launched a new coupons section on his blog.