Debit Card vs. Charge and Credit Cards

In today's society, more and more purchases are being made with 'plastic'. The main reason: plastic is safer and more convenient than cash. There are three forms of plastic made available to consumers; debit, credit and charge cards. The words are often used interchangeably, although they are, in fact, different ways to make purchases. Let's examine the differences between them:

Debit Cards:

A debit card allows you to gain immediate access to money in a bank account through the use of electronic fund transfers. A debit card is often referred to as an 'ATM card' and is available at almost every major bank. As long as it contains a Visa or Mastercard logo, a debit card can be used anywhere 'standard' credit cards are accepted. Here's the PROS and CONS:

  PROS:

• Obtaining a debit card is often easier than getting a credit or charge card. If you qualify to open a bank account, you can usually get a debit card.
• Unlike writing a check, using a debit card prevents you from having to show identification or give out personal information since you use a PIN number to authorize transactions.
• Using a debit card can prevent you from getting into debt. Unlike credit cards, you can only spend money that's available in your account. You don't have to worry about paying bills or missing payments since your funds immediately pay for new charges.

  CONS:

• Unlike charge or credit cards, debit card transactions provide no grace period. Once you pay, funds are immediately removed from your account.
• Using a debit card can make balancing your account tricky if you don't keep receipts or record transactions in a timely fashion. It is easy to forget, for example, when you pay at the gas pump with a debit card and drive off without your receipt. If you accidentally overdraw your account-- you could end up paying hefty fees.

Charge Cards:

When you make a purchase using a charge card, you create a balance that is paid in full each and every month. The most well-known consumer charge card is the American Express® Green Rewards Card, or for business accounts, the American Express Business Gold Rewards. Here are the advantages and disadvantages of using a charge card.

  PROS:

• The fact that you must pay off the balance each month helps to keep your overall debt down. Using a charge card may help you stay within your budget.
• Charge cards often waive a set credit limit or allow for a very generous one. This is an big advantage to anyone who uses credit for business expenses.
• Charge cards offer many rewards and are often more generous than credit card rewards.
• Comprehensive, detailed expense records that allow for easier tracking of your purchase history. Annual records that specify categories of purchases may be of benefit to businesses.
• You'll pay no interest charges (but an annual fee usually applies).

  CONS:

• Since the balance is paid if full each month, you'll be limited if you need additional funds.
• If you aren't able to pay your bill in full by the end of the month, there are huge fees and penalties on any unpaid balances.

Credit Cards:

Like a loan, purchases made with a credit card are paid with a pre-approved line of credit. Each month you can choose to pay the balance in full or pay only the minimum and carry over the remaining balance to the next month's statement. Of course, you'll be charged interest for this privilege. As long as you make regular, on-time payments-- you're account will remain in good-standing and you can continue to carry a balance each month.

  PROS:

• Credit cards offer greater flexibility and are often accepted at more locations worldwide than charge or debit cards.
• Great in case of emergencies! The option to delay repayment can be helpful in times of need.
• Your credit history and credit score benefit from responsible credit card usage.
• Many security features, including: purchase and fraud liability protection, insurance coverage and product warranties.
• Typically, credit cards have no annual fee (unlike charge cards).

  CONS:

• If you can't payoff new charges by the end of the month, you'll pay interest charges on the remaining balance you carry forward.
• May be too convenient for some people! Misuse may lead to debt and / or a poor credit.
• Late fees ranging from $20-$40 may apply for late bill payments. Plus, your interest rate could increase (as high as 20% or more!) if you're late or miss a payment.
• A favorite target for scam artists. Credit cards or credit card numbers may be stolen and used fraudulently by thieves and crooks.

Whether you choose a debit card, a charge card, a credit card (or all three!)-- understanding the pros and cons of each type of payment method will help you make the appropriate decision for your next transaction. Evaluate how you plan on paying for your new purchases to determine which option is best. If you're going to use a charge card or credit card, make sure you can make the required payments to avoid penalties and prevent damage to your credit.

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