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As savvy shoppers, we often ponder which of our cards to use when making a purchase. Should we use our debit card or our credit card? Here are some facts about each card that might help you make a decision about which one to use.
Debit cards issued by your financial institution serve many purposes. You can use the card at an automated teller machine for checking your balance; withdrawing money from your account; or transferring funds from one account to another. When making a purchase you can use the Personal Identification Number (PIN) feature; or a signature for the Visa or MasterCard feature. The underlying theme of a debit card is that you use your own money to make purchases from your account. Typically, charges on your debit card are held from your checking account. If you exceed the balance in your checking account, your options include an overdraft feature called courtesy pay, or an overdraft loan. Otherwise, you may be charged an overdraft fee or have your purchase declined.
On the other hand, a credit card uses a line of credit you have established with your financial institution. If you pay off your balance monthly, you will not incur any finance charges. If you carry a balance, you will be borrowing money at your card’s interest rate. Read your disclosures for the grace period. Depending on your credit card, the interest rate may be fixed or variable, based on the prime rate or an index. You are responsible for making, at least, minimum payments on your balance by a deadline date. If you don’t pay by the deadline, you may incur a late fee, which is added to your balance. Credit card companies also issue “convenience checks” which act like cash. Again, read your disclosure for cash advance fees. You can use this check for transferring balances to your account or making a major purchase. However, the interest on convenience checks starts accruing immediately after purchase, versus after 30 days on a credit card.
Depending on your spending habits, debit cards are recommended for everyday purchases, while credit cards can be reserved for emergencies or large purchases. You should probably develop a management system, and track your debit and credit cards wherever you are. Please report any theft or unauthorized purchases immediately to your financial institution or card issuer, whether it is a debit or credit card.
Whichever card you use, the choice is yours. Both debit cards and credit cards are very practical for making online and retail purchases. However, the decision rests on your level of responsibility and your finances.
Published: May 24, 2012 – Volume 11 – Issue 06