Fast Cash or Future Debt? Compare Credit Cards and Debit Cards

Everyone else is doing it, and it's easier than spending cold hard cash. Best of all, the bill doesn't even arrive until nearly a month after you make your purchases. Shopping with a credit card surely has its advantages, but how does it stack up with making purchases with a debit card?

Different types of payment cards serve different purposes, with credit and debit cards sharing a common role while differing on a few levels. Both can be used when cash is not readily available. Either type of card will allow a consumer to make purchases quickly and easily,

Credit Cards vs. Debit Cards

For security purposes, debit cards require keying in a pin number prior to activation for each transaction. Debit cards can also be used much like credit cards without the pin number, but a signature will be required in stores.

On the downside, debit cards could wreak a lot of financial havoc if they fall into the hands of a thief. Though the card will only withdraw as much money as is available in a cardholder's checking account, the funds are not as securely protected. Debit card users are responsible for the same $50 liability as credit card users, as long as they notify their card company within two days of learning of the theft. In only a few moments' time, a thief could very easily wipe out an entire bank account with little chance of the consumer recovering the cash.

The great thing about debit cards is that they prevent their bearers from going in the red, as the cards only extract available money from a person's bank account. Debit cards also provide instant access to cash via ATMs, or automated teller machines. Because the cash comes directly out of the account for each transaction, no interest is charged.

Consumers should be aware of nominal fees associated with using an ATM machine for a bank other than their card's issuer. Fees of $1.00 or more may be charged when a cardholder decides to withdraw funds through an ATM. Debit cards can also provide cash back when a consumer makes a purchase in participating shopping venues. Cash can be withdrawn while shopping at supermarkets, drug stores and superstores - and just about anywhere with a credit card machine.

Meanwhile, credit cards provide as much cash as is needed until the credit limit is reached. With a few careless swipes, though, the bills add up, pushing one further and further into debt. The urge to purchase items while knowing the bill will not come until the following month presents a temptation that might lead to poor spending habits.

When not paid off in full when due, credit card balances will begin to accrue interest that will also have to be paid back by the cardholder. Interest rates are not the only possible downside to owning a credit card, though. Missed payments and late payments, overlimit spending and other borrowing boo-boos will come back to haunt you with finance charges on top of your balance and interest payments.

Security wise, credit cards allow their bearers to breathe just a bit easier, with the damages incurred when a card is stolen usually tallying a maximum $50 liability.

Finally, when used responsibly, credit cards will serve their bearers well in establishing and maintaining good credit scores. Debit card usage is not factored into a card user's credit history.

For those who tend to live from paycheck to paycheck, credit cards may be the best bet. By paying off balances as they come due, or at least their minimum payments, a cardholder can form responsible spending and borrowing habits while building a favorable credit score.

Using a debit card for purchases one would otherwise make with cash is a widely accepted formula for knowing which type of card to use for certain transactions. Purchasing more expensive items may work best for those who own rewards-based credit cards, or those who tend to carry a balance. When shopping on the Internet, credit cards used on a secure Web site provide better consumer protection in case of faulty or unsatisfactory merchandise.

Carrying both types of cards in one's wallet provides consumers with the flexibility to make important financial decisions. By deciding between a credit card or a debit card, cardholders are essentially choosing "pay now" or "pay later".