Debit And Credit Cards Explained
Over the years, we have seen more banks move towards facilitating payment through use of debit and credit cards; online banking, and even mobile applications to provide customers with a digital means of processing payments in lieu of using the popular cash payments of yesteryear.
Today, we will shed light on the important differences that accompany debit and credit cards, and yield examples to help you correctly choose the one that serves you best when making your purchases.
What Is A Debit Card?
A debit card is linked directly to your bank account. When you choose to make any purchase with a debit card at a retail store, gas station, online business, etc, that money is deducted immediately from the bank account it’s associated with. Debit cards also allow easy access to cash through an ATM without interest or associated late fees. However, if a debit card is used for a purchase, and the required amount to pay for the item in full is not already in your bank account, your bank will likely process the payment anyways but charge you for an overdraft fee which usually ranges from $25-$35. So, please be aware of this before making any purchase without the available funds necessary because overdraft fees will add up VERY quickly.
Another risk to consider when using debit cards is being the victim of theft or identity fraud. Because a debit card is linked directly to your bank account, it can take weeks or even months to prove your innocence and get your money back should either of these events incur, so a quick tip is to avoid all online purchases with a debit card if you can otherwise do so since majority of fraud incurs online. Furthermore, when carrying a debit card or credit card in public, you should highly consider an RFID wallet to prevent unauthorized scans; protecting both your money and identity from being stolen.
What Is A Credit Card?
A credit card is not attached to your bank account; however, your bank most likely offers them for approval. Because a credit card is not directly attached to your bank account, they are safer to use than debit cards for making purchases, especially if those purchases are made online.
When using a credit card, you will be borrowing money from the bank you obtained it through, and based on your credit score, and how much trust you’ve built with the bank, you will be offered a credit limit for spending that reflects this. The bank allows you to make monthly payments on these purchases which will be noted within the Statement Balance received on the monthly bill that will showcase the purchasing amount accrued during this time. If you can only make the Minimum Payment, and are unable to pay the Statement Balance in full, at the time it is due, you will then be charged for the interest amount associated with your credit card. Interest is how banks make a lot of money, and it can add up very quickly, so credit cards should only be used for emergencies, or when you already have enough money in your bank account to pay them off in full every month.
One of the many perks associated with credit cards are their rewards. Oftentimes, these rewards will range from cash back on purchases, travel points, or even hotel discounts. Moreover, when used wisely, credit cards can provide a fantastic means of building credit which will greatly help when the time comes for making important large purchases such as buying a new house or automobile. However, while there are many benefits associated with the use of credit cards, it is important that you do your research first prior to enrolling for one, as not all are created the same, nor offer the same benefits or rewards to its customers, and can instead be associated with high interest, fees for late payments, or even annual fees.
Above all else, credit cards are not for everyone, and you will need to consider your financial lifestyle and needs accordingly to choose whether a debit card or credit card works best for you.
