Tiffany Raiford
Who even cares about the minor details that make a debit card so much different than a credit card? I hear this phrase more times than I care to admit, and it’s a little disturbing. The simple answer is this; you should care. Debit cards are not credit cards, and there are marked differences between the two. While not all the differences between the two might be anything you care about in the least, there are some things you need to know about them as they do pertain to your financial future. These are bits of knowledge that will help you protect your finances and make it possible for you to stay as happy as possible in terms of your bank account.
The problem is that debit cards look and act just like credit cards to the naked eye. You enter a number, you buy things. But that’s about as similar as the two really are. Sure, they both fit in your wallet and allow you to make purchases, but that’s it. The rest, as they say, is history. Your debit card does not act like your credit card, and we can tell you precisely why so that you are educated and well-informed about your finances.
Provide Unlimited Spending
It’s true that debit cards do not offer unlimited spending, but neither do most credit cards. Unlike a credit card, however, debit cards do not have a set limit of what you can spend using them. You can use what’s in your bank account, and that’s it. With a credit card, you have a spending limit. With a debit card, you have a bank balance that you can easily track with your TAPT Money App and that’s your spending limit. No money in the bank, no using your debit card.
Work No Matter What you Buy
This is just not true. You cannot buy anything you want with a debit card. For one, you have a daily spending limit. For example, my debit card with my bank offers a $1000 per 24-hour period spending limit. This means that occasionally, my card is declined if I have multiple purchases pending. Last week, for instance, I bought my twins new car seats and a new double jogging stroller. I used my debit card to make this purchase, which was well over $800. When I went to the supermarket that day to make our weekly grocery purchases, my card would have been declined had I used it, because my grocery bill was over $200 and that would have put me over my $1000 per day spending limit.
Improve your Credit History
Debit cards are linked to your bank account and have no bearing on your credit. What this means is this; your debit card might look like a credit card, but it’s more like cash than a credit card.
Protect your Finances
Most banks do not offer nearly as much protection for your finances as a credit card. A credit card company might reimburse you for all fraudulent charges if reported immediately. Most banks will not protect you like that. You might still be liable for most of your card’s fraudulent purchases.
Earn Rewards
Debit cards typically do not offer reward programs in the same way as a credit card. Some do, such as the PayPal debit MasterCard, but that’s about it. For the most part, these cards do not offer travel rewards or anything of that nature. This means you’re spending and earning nothing in return.
Hold Reservations
All right, this one is not true. You can hold reservations with a debit card most places. But you cannot use your debit card to pay at many places. When my husband and I went to Napa Valley, prepaid for us to rent a convertible for the long weekend. I used my debit card since I was prepaying. When we were asked if we’d like to upgrade our rental Mustang for a Corvette, we said yes. But then we were told no, since we used a debit card to pay for the purchase. Since we’d already paid with the card, we couldn’t upgrade since that car requires a credit card payment. Oh well, but really, it’s a painful realization if you haven’t a credit card and you’ve held something with a debit card only to find out you cannot pay using your debit card upon arrival.
Hurt your Credit
The good news is that overdraft fees will hurt your bank account, but not your credit. If you accidentally spend more than you have in the bank, your bank will just charge you a fee or deny your purchase. That’s all.
Leave Your Bank Account Free and Clear
Not true; and this is a problem for many people. Let’s say that you use your debit card to book a hotel room. You can, and you can even pay this way. But the problem is that your hotel is going to place a hold on your card. It’s typically for the full amount of the room plus a per night fee (sometimes as low as $50 and sometimes as high as $250). That hold means you cannot use those funds in your bank account. Additionally, those funds are not typically released for up to a week after check out so they are not available at all during this time. With a credit card, you do not have this issue.
Work as a Credit Card
Debit cards are not credit cards. They look the same, but they are not. They do not work the same way at all. You do not have a monthly payment on a debit card. You do not have a minimum amount due, and you can only spend what’s in your bank account.
Offer Purchase Protection
If you purchase things with certain credit cards, you’ll find that you have purchase protection. This could be sort of like an extended warranty on purchases. With a debit card, you don’t get this benefit, which is why it is sometimes more beneficial to use a credit card to make big purchases and just pay it off when the bill arrives.
Photo illustration by Matt Cardy/Getty Images
Comments
Loading…