Most people own at least one debit card and at least one credit card. They know they have them, but they may not know about all the differences that exist between using a credit card and a debit card.
Believe it or not, there are many. The most basic difference is the fact that each time you use a credit card, you’re borrowing money. A debit card, on the other hand, simply transfers your own money from your checking account to the vendor you’re paying.
When you use your credit card, your credit union is lending you money, which you’ll need to pay back along with interest. A debit card takes funds directly from your account similar to the way that checks do – only quicker. Some processing terminals will require a PIN and some will require signature.
Both credit and debit cards are convenient, quick and easy. They’re also safer than cash, because cash cannot be replaced if lost or stolen.
Which one should you use? The answer depends largely upon your lifestyle.
However, it’s nearly impossible to incur thousands of dollars of debt through debit card usage. Most credit unions will cover purchases that put your account into the red, but only up to a few hundred dollars. If this happens, you’re accountable for your purchases and charged an overdraft fee.
For debit card fraud, your liability is $50 if you notify the credit union within two days of seeing the fraudulent charges. After two days, your liability increases to $500. If you report the activity 60 days or more after it happened, you may be liable for all of it. Although many credit unions have implemented voluntary plans to limit customer liability to $50, there is no federal law requiring them to do so.
In addition to stricter liability laws, credit cards offer consumer protection on purchases. You can always cancel a charge if you are the victim of an online scam or bought something that was never delivered or wasn’t what you expected. This makes credit cards the ideal choice for large or fragile purchases that will be delivered to your home for additional insurance on the purchase.
Don’t get hooked on the points. Research each card carefully to make sure you’re really getting your money’s worth.
If you don’t think you will be able to pay your bills in a timely manner, keep credit card usage to a minimum.