Debit cards enable better money management, but don’t offer perks

Few people pay for anything with cash anymore. In the last ten years, the world has slowly moved towards non-cash transactions. This includes both credit and debit cards, two very similar ways of paying for merchandise by consumers. They may look to be similar or even identical, but they function in very different ways. You should be aware of good and bad points of using each one so that you can best decide which one is the right one in any given situation.

Debit cards

Debit cards look like credit cards and sort of work like them in that you can use the card without having to pay cash. Unlike a credit card, which comes with a monthly bill, a debit card removes the cash from your bank account immediately. This is good if you are the sort of person who likes to live within their means and don’t want to spend money that you do not have. It’s just an easier way of writing a check. The downside is the same as the upside - the money comes out of your bank account right away. That’s fine as long as you remember to note the transaction in your checkbook. If you should forget and end up overdrawing your account, you will find yourself facing stiff fees from your bank. These fees, which average about $35 or so, can easily add up and make a bad situation worse if you regularly keep a small balance.

Credit cards

Credit cards allow you to make a quick, easy transaction and pay later. If you are one of those consumers who pays their bills in full each month, using a credit card is a simple convenience. If you do not pay in full each month, your credit card is a source of outgoing cash, as those bills accrue interest, often at rates of more than 20% per year. They add up in a hurry, and can contribute to a ton of debt in a very short amount of time.  Other drawbacks include hefty fees if you make a late payment on your bill. These fees, which can be as high as $39 are not the only downside, as your lender can also raise your interest rate when you make a late payment. 

 On the plus side, credit cards offer benefits that debit cards do not, including protection against fraud, protection against theft, and in some cases, protection against defective merchandise. Additional benefits include earning miles for airline travel and discounts for gasoline purchases.

Both debit and credit cards offer benefits to consumers. Each one makes it easy to transact and eliminates the need to carry a lot of cash around with you. Such transactions are also faster than writing a check and the cards can often be used at establishments that otherwise wouldn’t accept your check. But you have to be careful as each type of card also has drawbacks. Before making a decision to use one or the other, decide which one suits you best in any given situation.

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