Debit or Credit Card Offers – What is the Difference?

While a debit card and a credit card may look nearly identical, they do function quite differently and deciding which one to use in which situation is important to your personal financial picture.

Debit Cards

In the USA debit cards are newer than in places like Canada and the U.K. where people have been using debit cards to pay for purchases directly from their bank accounts for around twenty years now.

Many people there have moved happily to a nearly cash free system with their extensive use of debit cards. They like not having to carry cash but still have easy access to their funds. In the USA however, debit cards have not been in use as long, and many people still do not quite know how they work.

A debit card is linked to your bank account. When you use it for purchases you are in essence paying with funds in your bank account. It is like cash that is immediately deducted from your account and paid to the retailer for the goods you purchased. You will not receive a bill each month for your debit card purchases. You will see the transactions on your bank account statement as withdrawals.

Some debit cards require that you set up a bank account that is separate from your existing checking or savings account. You can also use your debit card at the ATM to get cash out of your account.

Credit Cards

A credit card works quite differently. A credit card is like a loan. When you present your card for purchases (http://www.bestcreditoffers.com/Low-Rate-Card-Offers-887604-page.php)you are borrowing money from the credit card company to pay for your goods. Institutions with unsecured credit card offers are basically extending loans without collateral in the form of a credit card.

Those with secured credit card offers are extending loans in the form of a credit card with some of your property as collateral in case you do not make your payments as agreed. Generally people with bad credit can only obtain a credit card that is secured in some way.

Each month you will receive a credit card statement listing your purchases on the card. This is a debt you now owe. If you do not pay the entire amount on the statement you will be charged interest on the outstanding balance on your next statement.

How you pay off your credit card purchases is reported to the credit reporting agencies as well, so if you do not at least make the minimum payments each month by the due date you can expect that to affect your credit score.

Which Card to Use

Which card you should use is very dependent on your own personal financial style and how responsible you are with debt.

Many people use their best credit card throughout the month for most of their purchases so that they can earn rewards, cash back or low rates on their card. They then pay the entire balance off each month so that they do not incur any interest charges. This is an excellent way to rack up the rewards while not carrying any debt.

Some people do not manage their credit card debt well and they may be better off using a debit card throughout the month. This way they can pay-as-you-go and not spend more than they will be able to pay for.

Other people prefer to use their debit cards anywhere they would otherwise use cash and charge larger items to their credit cards to be paid off at the end of the month.

Liability Issues

A big difference between debit and credit cards is in the matter of personal liability. With your debit card you must assume more liability because if you do not report your card missing or stolen you are required to pay the first $500 that may be fraudulently acquired on the card (only $50 if you report it within two days).

Remember a debit card is for your bank account so you should notice funds missing or suspicious activity quickly. If you do not notify the bank as soon as you see it you can be liable for the losses. Most banks currently put the responsibility for monitoring your account on you and the entire loss is yours if you have not notified the institution of any problems.

On a credit card, your liability is limited to $50. You are still responsible to report missing or lost cards and any suspicious activity but credit card companies are often the first to notice any fraudulent activity on your card. They will often contact you when they see something suspicious and cards can be cancelled early and re-issued to you.

Purchase Protection

Because debit cards are basically like cash out of your bank account, they do not provide any kind of consumer protection. If you have problems with items purchased on your debit card you must rely on the retailer to correct the situation.

In the case of credit cards however, the Fair Credit Billing Act allows you to contact your credit card company to withhold payment to a merchant who has not corrected the problem satisfactorily. In the case of major purchases, using your credit card can provide extra peace of mind for you.

Choosing Credit or Debit Card Is Up to You

Now that you know the difference between the two kinds of cards, you should make a plan for yourself on how to use the two. Being careful not to overspend with credit cards but still using them to acquire reward points and to take advantage of purchase protection is a good idea if you can pay the balance off each month.

If you know you simply cannot use credit cards without overspending, you may want to stick to your debit card and the pay-as-you go method to stay safe. How you manage your finances is personal and you will want to spend some time considering how to best use your cards to suit your own circumstances and your own spending habits.

Debit and Credit Card Tips:

• Use your credit card for big ticket purchases and for online purchases even if you will pay the entire amount off at the end of the month. This allows you to take advantage of purchase protection in case there is a problem with items.

• Only use your credit card for everyday purchases (such as groceries and car gas) if you are going to pay the balance off at the end of the month and you want to acquire rewards points

• If you have problems overspending, stick to your debit card as much as possible.