Credit versus debit cards

Credit or debit? If you have ever purchased something at a store with a plastic card you have probably heard that line more than once. But you should actually be asking yourself that question, which transaction would be in your best interest. Unfortunately the answer is not so straight forward, each type of card has its pros and cons to using them or not using them.

But something that is interesting to note is that debit cards are actually more popular than credit cards with consumers. In fact according to a recent study that was done, a TNS Financial Services Consumer Credit Card Program Study, it was indicated that over 60% of consumers preferred using their debit cards to pay for purchases rather than their credit cards because the debit cards felt more like real money. In fact debit card transactions now make up the same value of in store purchases as cash, which is currently at 33% each for the total amount of transactions and that number continues to grow each year. But credit card use has actually declined from 21% of in store purchases to 19%.

Here are some of the advantages and disadvantages of using a debit card.

• Debit card payments come out of a checking account as soon as the transaction is completed, which means that you will not face any kind of credit card bill. Nor will you have to worry about high interest rates.
  
• Debit cards are directly linked to a checking account so they can purchases to items that the purchaser can only pay for at that time, which means no getting into debt over one single purchase.
  
• Most banks do not charge for a debit card transaction, which means you can use a debit card for little to no cost.
  
• Since the money that is in the checking account is your money you don't have to worry about paying it back nor do you have to worry about any of the other things that go along with borrowing money such as interest and such. But if you overdraw your account you do have to worry about overdraft fees and insufficient funds that can hurt you financially.
  
• Many stores still charge you a small fee to purchase something with your debit card, the fee can range from 25 cents to $1 but they are slowly disappearing.
  
• Withdrawing money from an ATM that is not affiliated with your bank can get rather expensive. But you can actually avoid this fee altogether if you use cash back transactions from merchants who don't charge you to use a debit card for purchases.
  
• If you have bad credit and can't qualify for a low interest credit card debit cards are a great alternative.
  

• If using them to rent a car or stay in a hotel the retailer can freeze a large amount of money on your debit card, which can cause your account to become overdrawn. The money never actually changes hands but it is frozen in your account so that you cannot use it just in case you have added charges for the transaction.
  
• Consumer Reports says those who pay with debit cards 20 times or more per year pay an average of $223 in overdraft fees, compared to $40 for people who don't use debit cards.
  
• Debit cards do not come with any kind of added benefits for when you make purchases it is simply you get what you pay for and if you want certain added benefits you might have to pay extra for it.
  
• If you don't write down everything that you have purchased using a debit card can make it harder to keep track of your purchases. Not to mention that if you forget to write something down and then balance your checkbook with that oversight you might think you have more money in your account than you actually do which can lead to those high overdraft fees that banks charge.
  
• Your debit card does nothing to help your credit history so even your good habits do nothing to help you. Not to mention that debit cards are not always accepted at every location.

Here are some of the advantages and disadvantages of using a credit card.

• If you do not have a debt burden and pay your balance in full each month you can benefit from up to 40 days, depending on your credit card terms, of free float. The free float is the amount of time between when the purchase is made and when you actually have to pay your bill.
  
• You have more protection with a credit card than you do with a debit card as a consumer. For example if you are unhappy with the quality of a purchase that you made if you paid with a credit card you have the option to withhold your payment until things can be resolved, but with a debit transaction the merchant most likely already has your money by the time you even realize that something is wrong.
  
• If you do not have the money to pay your balance in full you most likely will only have to pay a small minimum payment each month until you have paid your balance in full. This allows you to purchase things that you might not be able to afford right away. But how much you pay and if you can make monthly payments rather than paying your bill in full are going to depend on your credit card terms.
  
• Offers flexible spending options because you are borrowing the money from somebody else and you won't have to pay it back for an extended period of time. The amount of money that you can borrow is only limited to the amount that you were approved for by the credit card company. Which this is nice if you need to make a big purchase and don't quite have all of the money to buy it outright or even if you run short on cash for the month.
  

• If you are a victim of fraud and have already paid out the money it is actually easier for you to get your money back if you are credit card customer. The reason for this is that when your credit card is used by a thief all you have to do is refuse to pay the charges, with a debit card the money has already been taking out of your account and it is up to you to get it back and that process can take up to 60 days for everything to get put back in your account.
  
• More rewards are offered with credit card holders than debit card holders. Not to mention the fact that the programs are also more favorable, meaning the rewards that are offered are more generous to people who use credit cards than debit card users.
  
• Credit card companies can also freeze money on your credit card account, but unless you are close to your credit limit this is not going to have an effect on your purchasing power like it does with a debit card.
  
• Many times credit cards come with added benefits, meaning you get more than what you paid for. Some great examples of added benefits that credit cards come with can be extended warranties on products that you have purchased, insurance for rental cars and airline travel and many others.
  
• Can build up your credit score by making your payments on time or by paying your balance in full every month.

Here are the legal protections that are offered for both credit and debit cards.

• Credit cards - under federal law if you have your credit card stolen or if you lose it and somebody else uses it then you are only responsible to pay for the first 450 in unauthorized charges. And if you notify your credit card company before any charges is made you might end up not owning anything. Not to mention the fact that if the card is not physically present during a transaction, such as an Internet purchase you are free from any kind of liability for those unauthorized charges. But the best part is that there are also zero liability policies that are offered as a second layer of protection. These policies make it so that if your card is ever used fraudulently either offline or online then you won't have to pay anything.
  
• Debit cards - although the federal laws are similar for debit cards there are a few restrictions that apply to debit cards. For example the $50 liability only applies to your situation if you report the card missing or stolen within two business days. If you put it off your liability can actually be as much as $500. And if you wait longer than 60 days after your bank statement is mailed then that cap is lifted and you could be liable for everything. The zero liability policies apply to debit cards, but only to the non-PIN transactions. If your debit card number and PIN are stolen the federal rules are your only defense.