Credit or Debit?

Have you ever wondered about the differences between a credit card and a debit card?

Perhaps you are a high school or college student, preparing to wrap up your final semester and get out into the “real world” and are ready to learn new ways to manage the money you’re about to make. Or, per chance you are the parent of this student, and you’re concerned about helping them with building a credit score. Let’s even suppose you’re a 36 year old local comedian with two rambunctious young children and a supermodel wife. Chances are, you’re on the go, and a card of some sort would come in handy for making purchases for your family and yourself. Whoever you are, you have to ask yourself, “Which card is right for my own situation?” On their surface, they both look like plastic cards with a magnetic strip on their backs, maybe a chip included to chip-in for advantages of paying with ease.

Purchases may be made with either of these so-called “magic cards,” but in reality, both carry differences on how these payments are made. Basically, debit cards let you spend money from funds deposited in your bank account; while credit cards let you borrow money from the card issuer up to a certain limit in order to make purchases.

CREDIT

With credit cards, cardholders must agree to pay money back with interest, according to the card institution’s terms.

According to the online financial publication Investopedia.com, cards are issued with a variety of categories. The wide range of credit options come with perks unavailable to debit cards holders.  There are standard cards, which extend a line of credit to their users for making purchases, balance transfers, and cash advances, and often have no annual fee. Premium cards offer luxurious advantages like concierge services, access to airport lounges and special events, etc…although for all that has been granted, these cards typically include higher annual fees also. There are rewards cards, offering cash back and travel points to customers depending on how much they spend. Then there are balance transfer cards, which offer a low introductory interest rate and fees on balances transfers from another card. Secured credit cards require an initial cash deposit held by the issuer as collateral, and then you have charge cards, with no present spending limit, but not allowing balances to carry over from one month to the other.

There are pros and cons that come with credit cards. While using a credit card can assist in building credit history, this information is reflected on an individual’s credit report. The report includes both positive and negative items, both on-time payments and delinquencies, so an element of responsibility falls in the lap of the cardholder. Such information is then used to determine one’s credit score.

The main drawbacks of using credit cards involve debt, credit score impacts and cost. Simply put, spending can lead to debt. Purchases made by credit card must be repaid, with interest. At the least, cardholder is required to make a minimum payment due each month.

According to Investopedia, credit cards offer greater fraud protection than debit cards in most cases. As long as the customer reports the loss or theft in a timely manner, their maximum liability for the purchase made after the card disappeared is $50.00. The Electronic Fund Transfer Act gives debit card customers the same protection from loss or theft-but only if the customer reports it within 48 hours of discovery. After that time, the card user’s liability rises to $500.00, then after 60 days, there is no limit.

The Fair Credit Billing Act allows credit card users to dispute unauthorized purchases or purchases of goods that are damaged or lost during shipping. If the item was bought with a debit card, the charge is irreversible unless the merchant is willing to do so. Furthermore, debit card theft victims do not receive their refund until an investigation has been completed. On the other hand, the credit card holder is not responsible for the disputed charges. The amount is usually deducted immediately and restored if the dispute is either withdrawn, or settled in the merchant’s favor. Investopedia goes on to note, “Though some credit and debit card providers offer zero liability protection to their customers, the law is much more forgiving for credit card holders.

DEBIT

With a debit card, payments are made by deducting money directly from a consumer’s checking account, rather than on loan. Debit cards offer the convenience of credit cards and some of the same customer protections when issued by major payment processors such as Visa or MasterCard.

There are two types of debit cards that don’t require the customer to have a checking or savings account, and there is also one standard type, which does draw on your bank account. Standard debit cards draw on your bank account. Electronic Benefits Transfer Cards are issued by state and federal agencies to allow qualifying users to use their benefits to make purchases. Prepaid debit cards give people without access to a bank account a way to make electronic purchases up to the amount that was preloaded onto the card.

Perhaps the most considerable advantage of a debit card is the opportunities they present for avoiding debt. A debit card draws on the money users already have, thereby eliminating the danger of racking up debt. By using debit cards, impulsive spenders can avoid the temptation of credit and stick to their budget. This can help keep them out of high-interest debt.

Another positive not on debit cards is they don’t charge an annual fee, or for withdrawing cash using your debit card at your bank’s ATM.  Credit cards can charge a cash advance fee, along with a high interest rate for that convenience. You may, however, pay other fees in order to maintain a checking account.

So, which is best for you? Here at Murphy-Wall State Bank and Trust Company, we understand everyone has different financial plans and lifestyles. That’s why we have options. Take a moment to do some research and find out more details at Murphywall.com on our Murphy-Wall Master Card and Visa Check Card.

CREDIT:

Murphy-Wall Master Card Credit Card:

https://www.murphywall.com/services/mastercard-credit-card/

DEBIT:

Murphy-Wall Visa Check Card

https://www.murphywall.com/services/visa-check-card/

Murphy-Wall Business Visa Check Card

Business Visa Check Card Murphy Wall

Back