Debit vs Credit – Using Debit vs Credit Cards in Everyday Life
A Few Words About Debit Cards
Though debit cards are pretty much like credit cards, there are significant differences between these two.
Account
The basic difference is in the account they pull money out of. Debit cards pull out from brokerage or checking account and do not increase or create a loan, but only use the money you actually possess. When using a debit card, you expose the liquid cash it holds to the world. A retailer can accidentally pull too much money (and cause you certain inconvenience), or by using your PIN in different places you can make it accessible to scammers, who can create a fake card and cash out your account using your PIN. If you manage to prove the fraud, you can have your money back.
Blocking
When you buy something with your plastic card a retailer blocks your card, i.e. authorizes and reserves money in your account, usually $50-$100. Since they don’t know how much you’re going to buy, they reserve a bit more to make sure you can afford it. After the amount is set the rest will not be released immediately, but can take a few days to come back. Until then you cannot use the blocked amount; all you can do is to face overdraft charges and bounce check fees. Using debit card on small errands may create charges, which may cost you more than the $60 of your credit card annual fee, since even a $4 sandwich can lead to a $40 overdraft charge. And in case you buy many such “sandwiches” your overdraft fees will start coming like in a chain reaction. What debit card can be useful for is in helping youngsters to understand the principles of credit cards’ work and in developing good spending habits. Once they learn to manage the limit of debit card, it will be easier for them to deal with credit cards, where limits are more flexible.
Use of debit cards
Generally debit cards can be used like credit cards, but with some retailers you have to let them know you are using a debit card. Since debit cards can help those with bad credit to function as if they have a credit card, many retailers demand credit cards as a verification of the client’s responsibility and creditworthiness.
