Although credit cards and debit cards are both widely used with majority of the population, their methods, rules and fees are very similar. While credit cards tend to get a lot of people into debt because it is harder to keep track of you spending balance, debit cards are an easier way to keep track of your spending much like having cash on hand. Both credit cards and debit cards provide a convenient alternative to cash, especially if you do a lot of shopping online (BARRETT).
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The similar aspects of credit cards and debit cards make it difficult for someone to decide what the best card to use is. With credit cards it is not needed to have money available on the card at the time of purchase. When you sign up for a credit card you have to agree to pay the amount you “borrow” back, plus interest fees obtained on the amount you owe (Lindsey). The organization pays the seller the amount you spent on the credit card and you pay the organization back.
Credit card companies often have different options to pay the amount owed back, like monthly or all at once. Using a debit card is like having cash in your pocket minus the inconvenience of keeping up with all the bills and coins. A debit card works great when you are traveling and cannot have large amounts of money in your possession. A debit card is linked directly to your bank account. In most cases, the person using the debit card knows exactly how much money they have available to spend.
Also there are different rules for every bank issuing debit cards. Some banks will charge a set amount for using an ATM that does not belong to the specific bank that issued the card, so be aware of the extra charges. Much like a credit card charges interest fees, if there is no money in your bank account you can accumulate overdraft fees. For example, most popular banks charge $35 per item for NFS (non-sufficient funds) and overdraft fees. US Bank charges $19 per item for the first violation, 2-4 is $35, and $37. 50 for five or more (McCoy).
The difference with credit card interest fees and a debit card overdraft fees is that on the credit card interest fees cannot be avoided, but with the debit card if you are aware of the balance in the bank account and do not go over what is in your account, all your purchases will not cost you any extra money. Both credit cards and debit cards have limits. For instance, with a credit card you have a credit line, which can be increased or decreased depending on your account status from the time when you applied for the card. With a debit card the limit of your spending depends on how much money is in your account.
Being responsible with your credit card usage can be helpful for your credit rating, but it is also very easy to run a large balance by spending too much, and when you add the interest fees, and late payment fees if applicable, the debt becomes so large it will be hard to keep up with your payments and it is very possible that you will go into higher debt. Similarly with debit cards, not keeping up with all the debit transactions can lead to more fees, but unlike credit cards most debit cards after the first sign of overdraft your card becomes unusable and when swiped it will be denied.
According to the Nilson Report, Americans made 28. 4 and 21 billion purchases respectively using debit and credit card in 2008. In 2009, the total credit card purchase transactions went down 4 percent; it was recorded as $20. 2 billion. However, the total debit and prepaid card transactions in U. S. was $36. 2 billion, an increase of 8 percent (Pritchard). In my opinion debit cards are the best choice to pay small amounts that you can easily pay in full, and the credit card should only be used as an absolute last resort. People everywhere are drowning in unsecured debt, because it is easier to overspend with a credit card.