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WALSH & ASSOCIATES BLOG

Friday, 15 June 2018 17:39

Credit Vs. Debit Cards

In today’s day and age, paying with cash is becoming increasingly rare. The alternative: Cards. How do we know when we should use a credit card or a debit card? Both options can have their strengths and weaknesses. Here are some things you should consider when pulling plastic cards out to pay.

How Much Does it Cost to Use a Debit or Credit Card?

One major reason people prefer debit over credit is that debit cards often have lower, if any, fees compared to credit cards. Most debit cards are free while only some credit cards do not have an annual fee. Fees debit card users need to worry about are: overdraft fees if they spend more than is available in their account, out of network ATM Fees, and foreign transaction fees.

Credit card fees can vary depending on the card. The annual fees can range from free to over $500 per year.  Credit Cards with high annual fees are usually associated with better benefits such as airport lounges, travel rewards, hotel rewards, or enhanced cash back options. There are many free credit cards out there with cash back options as well. When choosing a credit card it is important to figure out what you value most in benefits whether it be cash back or rewards of some type. It is also important to remember to make your credit card payments in a timely manner.

What if my Card Gets Stolen?

If your credit or debit cards get stolen you should report it immediately. Debit and credit cards have different liabilities for stolen or lost cards.

Debit cards limit your liability to $50 when you report the stolen card within 48 hours. You’re liable for $500 of fraudulent charges if you do not report it within 60 days. After 60 days, it is unlimited liability. For credit cards, the user is responsible for no more than $50 in fraudulent charges. Play it safe by using a credit card in higher risk situations, like online shopping, or paying at a restaurant where your card may be in plain sight. If you want to use your debit card, one solution could be to keep a lower balance in the checking account associated with that card.

You are also able to dispute charges on your credit card before paying. If you contact your card company with the dispute, you do not have to make payments on said charge while it is under dispute. This process is more difficult with a debit card. Since the money is taken directly out of your account, it may take some time before the money returns to your account.  

Building Credit and Managing Money

It’s no surprise that credit cards can affect your credit. Credit cards report your activity to credit reporting agencies and, if you pay your bill on time, this can help build up your score. An inability to pay your credit card bills on time will have a negative impact on your score.

Debit cards, on the other hand, do not report to the credit reporting agencies. If you are an impulse buyer, debit cards can limit your spending. Since the money is pulled directly from your account, you can see the flows of your bank account and monitor accordingly.

So which do I Choose?

It depends. Luckily for you, you don’t have to choose only one. Just remember to consider some of the key factors already discussed. Be aware of possible fees you could be encountering. Consider if it is safer to use credit in a place where someone else may see your card. Always think about if you can keep up with the credit card payments. When using a credit card, be sure to always make payments on time, and make sure that you are not going into debt from using the credit card.

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