Over the past century, the methods in which we spend our money have dramatically changed. As we continually progress into a more technology based society, the use of cash and checks for payments declines. Today, the majority of payments consist of either credit card or debit card payments. Today, we would like to examine the pros and cons of credit cards and debit cards.
The Difference Between Debit Cards and Credit Cards
Debit and credit cards appear virtually identical, but they have their differences. Although both are plastic cards with a long number, expiration date, and security code, debit cards withdraw money directly from your checking account. On the other hand, when you use a credit card, you can borrow a certain amount of money from the card issuer and repay the money with interest.
The Advantage of Debit Cards
If you exercise little self control with money or are a compulsive spender, then for the love of God, do not use credit cards! Credit cards sometimes have high interest rates, so your $300 purchase can snowball into a much higher purchase over time if you do not pay your money back in a timely manner. On the other hand, debit cards draw directly from your account, so you are spending the money that you actually have in your account. Although debit cards sometimes require a signature like credit cards, they often require you to type a personal identification number (PIN) in order to make a purchase.
The Advantage of Credit Cards
With high interest rates, you might be wondering why anyone would want to use a credit card at all. When purchasing a house or car, people often check your credit rates to see if you are eligible for a loan. Even when renting an apartment, your landlord or apartment company might check your credit to determine if they want to rent to you. Credit cards help build your credit as long as you pay back your purchases in a timely and responsible manner.
Rewards
Many credit card companies offer rewards when you purchase gas, groceries, and more using your credit card. Rewards include frequent flyer miles, discounts, and cash back from your purchases. If you spend wisely using your credit card and pay back your purchases on time, you benefit from many excellent perks.
Places to Use Your Credit Card
We recommend using a credit card instead of a debit card in certain situations for protection or for convenience. For instance, we always recommend using a credit card to purchase gas at a self-serve gas pump. In the past, skimmers have been placed on pumps to obtain debit card information and extract money from people’s’ checking accounts. Banks can be slow to respond to fraud, taking weeks to reimburse you the stolen money.
Credit cards can be a better spending option when renting a hotel room because some hotels place holds on your card to recover any unexpected costs. As long as you don’t party like a rock star, you should be able to get your money back. However, if you use your debit card to pay for your hotel, you don’t have access to all your money at the time due to the hold on your card.
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