Cayading: Are there differences between the debit and the credit cards?

Monday, June 6, 2011

WELL, we are now living in a world where you can transact business with a piece of a plastic card... You can use this as a payment of your purchases and bills wherever you are -- whether a mall, restaurant, groceries, bazaars and other places -- recognizing this piece of a card.

Others can even transact business in a click of a mouse by submitting their code numbers and other required and/or needed information. We call this debit card and others use the term credit card.

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To the unsuspecting eye, they are the exact same thing. Both are small, rectangular pieces of plastic. Both have a brand logo. Both scan or have it swiped when you buy something at the store. But under that plastic skin, there are indeed some differences. This article will somehow help us explore the key differences of credit cards from that of debit cards -- its advantages and disadvantages.

Well, when you use a debit card (signature based or PIN based purchase) your charge is withdrawn directly from your bank account. For its advantages, this makes credit card debt impossibility and possible to get cash back. As an example, there are financial offers by some companies a certain percentage cash back on every purchase. Doesn’t require a credit pull, so you can get one with a poor credit score.

But if you have to think of it, this is more painful to look at. Meaning, you may spend less. If you look at your bank statement and have a bunch of debit card withdrawals, you’re more likely to adjust your spending. However, with a credit card, when your bill comes at the end of the month, it’s too late if an adjustment is necessary.

For its disadvantages, overspending can be costly. Your bank may charge you certain amount if you overdraft. However, if you use your card multiple times before recognizing the problem, you’ll be overdraft multiple times.

It is more difficult in situations that require reimbursements. It’s not unusual to find yourself in positions where you pay for something only to get reimbursed later. That is simpler in a situation where you have a credit card because you can get your reimbursement before the bill arrives.

While in using the credit card, your purchase is paid by the credit card company. At the end of your billing cycle, they’ll send you a bill for everything you’ve charged in that time period.

It has opportunity to maximize credit card returns and rewards. With a debit card, your best chance is to get a certain percentage back. Some credit cards will allow you to get even more in return for your purchases.

Credit card sign up bonuses. When you sign up for a credit card, they’ll often give you something as an incentive. Sometimes that incentive is worth hundreds of pesos. There are credit card companies that will give you bonus points to sign up for the card. With that, you can get certain amount worth of gift cards, worth of travel, etc.

Credit Card has the ability to float balances. You’ll get to increase a little more interest, as you don’t actually pay your balance until 45 days or more after you actually purchased an item. Credit cards offer extra benefits like zero percent foreign currency exchange and car rental insurance. If you travel much, these can make big differences.

For its disadvantages, credit card debt is one of the leading causes of financial problems. Some families who have used this system probably have a credit card debt horror story. That some are probably living one as I write. If you have been in credit card debt or have credit card debt problems, then the credit card is not a good choice for you. Interest and fees will really destroy your finances. You disassociate yourself with your money. Sliding the plastic can be too easy sometimes. This may mean that you’ll spend more money with a credit card than debit card.

Well, the biggest difference comes when you are dealing with fraudulent purchases, damaged items, and a stolen car. When you buy something using a credit card, you are covered under the Fair Credit Billing Act. As such, you will not be held liable for fraudulent purchases, damaged goods, and products that were never delivered.

While there is some protection for debit card purchases (Electronic Transfer Act), you do have more liability. When you notify your bank within two days, your liability is limited to a certain amount as imposed by the Companies. However, between two days and six days your liability certainly could be increase. Waiting more than six days could mean you have no coverage.

If there are problems with your purchases, MSN Money says that the customer needs to contact the merchant and work it out before contacting the debit card issuer. You may just get a store credit or gift certificate. That certainly leaves you with a little more liability. With a credit card company, one call to the credit card company will often result in a cancellation of the charge so you will not be billed for the purchase.

Well, to reconcile the differences, some credit card users will just pay cash when spending less than P500.00. Others don’t actually use debit cards at all, but opt for cash for smaller day to day purchases. However, for larger amount of purchases you can put that chard on a credit card. Anything expensive or electronic goes on a credit card for the extra warrantee and coverage. If you are a debit card user, you could have a credit card to use for large purchases only.

Do you use a debit card or credit card? What are your thoughts on the differences?