Many consumers often confuse a debit card with a credit card. After all they are both issued in a plastic card form and used for the same purpose. While a credit card holds a credit rating and credit score, a debit card does not qualify one for credit worthiness. A credit card is issued as a form of a loan from a credit card company. It gives you access to use their accounts to purchase goods. Every time you use your credit card in every purchase, you are actually borrowing money from the issuing credit card company.
By doing so, you are subject to their interest rates and other charges. You are billed of your debt including interest on the billing date. Along with your credit card bill is the amount due and the minimum amount to be paid for that billing period. If you cannot pay the total amount in full, you are required to at least pay the minimum amount with the remaining balance carried over to the next billing period. The carried unpaid amount due will again gain interest to be added to your next bill. This is just a chain reaction on how credit cards earn from the interest imposed due to non-payment of your debt from them in full.
Debit cards are plastic cards issued in lieu of checks on your checking account. It may be used as long as your saving accounts have sufficient funds. It is now widely accepted, and conveniently used by consumers in cashless purchasing instead of withdrawing cash from their accounts. It also minimizes the hassles of issuing and carrying checks around to get access to your personal accounts to pay for something. In debit card use, you are accessing your own funds not as a form of loan from a credit card company. Hence, you are not subject to any interest rates. It is just like cash shopping without using cash at hand. No loans are made during payment and without interest to pay.
Many banks favor debit cards because every transaction made is less costly than would a check issued for every transaction processed. Issuance of debit cards is also a form of income generating market for banks as they often charge customers a fee for debit card issuance. Banks also receive at least 1% fee of the purchased price from merchants. A higher rate applies to merchants when a signature is required to validate the debit card instead of requiring a personal identification number (PIN). Bank institutions justify the fee because of the greater risk for an overdraft when signatures are used than PIN verification.
Debit cards also impose greater risk for consumer than credit cards. Losing your debit card is like someone stealing your entire checking account. Anyone using that card can clean up all your account. Debit card is perfect for smaller purchases. It also limits your money machine visits when you run out of cash when buying something. The risk of misplacing your cash is lowered and there is no need to present any form of identification when paying with a debit card. A detailed report on your every transaction is also reflected in your monthly checking account so you can closely monitor all your transactions made.
A debit card is a good budgeting tool that puts limits to your purchases that is within your budget. While a credit card opens a venue for excessive spending habits as long as you don’t go beyond your credit limit. These two cards have one thing in common, that is the convenience of buying goods without cash at hand. Now, that’s convenient.
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