Credit cards and debit cards are both convenient payment methods that most merchants accept. However, notable differences make each preferable for certain purposes. Here are the pros and cons (and when you might want to use) each one:
Interest and Fees: Debit Cards
Both credit cards and debit cards can have fees associated with them, but credit cards tend to have more fees and also charge interest:
- Credit cards can have any number of fees, possibly including an annual fee, late payment fee, over-limit fee and others. Interest is typically billed monthly on any unpaid balances.
- Debit cards can have overdraft fees, and many charge a small fee anytime that they’re run as a “debit” transaction.
The fees and interest can be managed with both types of cards. Credit cards without annual fees are readily available. As long as you remain under the credit limit and pay off balances each month, you won’t pay late fees, over-limit fees or interest. Debit card overdraft fees can be avoided by budgeting accurately, and the per-transaction fee doesn’t apply if you pay via “credit.”
For the simplest and most sure way to avoid fees and interest, though, a debit card is the better choice.
Rewards: Credit Cards
Debit cards that offer rewards are hard to find, but many credit cards provide rewards. Rewards can include cashback or points, the latter which might pay for consumer goods, tavel or other items. Some rewards programs even have an option that allows you to donate to charity.
The standard rewards that credit cards offer generally range from 1 to 5 percent, and sometimes certain categories get higher percentages back. This is in addition to bonus sign-up rewards, which can be substantial and many cards come with for new accounts.
Many people use credit cards because of their rewards. In order for the rewards to be worthwhile, however, you must avoid fees and interest.
Purchase Protection: Credit Cards
Many credit cards offer purchase protection, which can include dispute resolution, insurance and other provisions. You can usually contest charges if a merchant fails to meet its obligations. Insurance is normally offered for specific purchases, such as rental cars or travel.
Debit cards don’t offer any such purchase protections. For this reason, it may be wise to use credit cards whenever you pay for more expensive items.
Credit: Credit Cards
Because credit cards are effectively lines of credit that provide short-term financing, they affect your credit. Making at least the minimum monthly payment establishes a payment history, which is part of your credit score and history.
The effect on credit can work against you if you over-borrow, fail to make payments and carry high balances, however.
Get Help With Bad Credit
If you’ve gotten into credit card trouble and now have bad credit, contact us at Key Credit Repair. We can help you begin improving your credit score and credit report.