Credit Card
Personal Debt Issues

Credit Cards vs Debit Cards

by Broderick Perkins

(7/15/2011) Erate Exclusive - To credit or debit? That is the question.

Most consumers carry both a bank credit card (or two or five) and a bank debit card because they serve spending habits in two distinct ways.

Here's a quick look at their differences, including the good, the bad and the ugly for both.

This week, we examine credit cards. Last week, debit cards.

Credit cards allow you to spend someone else's money and that means spending more money than you actually have, typically up to a credit limit that can be tens of thousands of dollars.

Eventually, however, you'll have to pay the money back with interest. You can avoid interest rates (averaging about 11 percent to 25 percent) if you pay the money back within the 15 to 45-day billing period.

When you don't pay the card off within the billing period interest and service charges can quickly mount. For example, take two years just to pay off a $500 balance at 18 percent and you'll end up paying nearly $100 in interest -- on top of the $500.

Credit cards can come with cash-back or points-toward-other-purchases rewards and, if you pay your bill on time, they help build your credit and boost your credit score. You want a high credit score to complete larger purchases, including a home.

The federal "Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009" closed many loopholes credit card issuers once slipped through to gouge consumers and that's saving consumers money.

But banks continue to find ways to make money, on credit cards, including higher cash advance and balance transfer fees and higher, often not clearly disclosed penalty interest rates.

Credit cards do however have greater protection against stolen cards and identity theft associated with credit cards. It's also easier to dispute a charge on your credit card account and have the charge instantly removed until the card issuer can research the dispute or theft.

With a debit card, the retailer already has your cash so complaints could take longer to resolve, leaving you with a smaller, already limited account balance and that could cause blocked purchases or overdrafts.

"The key advantage of using a credit card vs. a debit card is the numerous security protections that come with it. Also, the benefits from rewards programs and points that can be accumulated with credit card use are an added advantage to the consumer," said Nancy Osborne, chief operating officer of ERATE, a Santa Clara, CA-based financial information publisher and interest rate tracker.

Like choosing a debit card, shopping for a credit card requires a high level of determination, a sharp eye for detail and time to make lots of comparisons.

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