Which Card To Use – Credit Or Debit Cards? Part 1
written by Credit-HQ ExpertIt wasn’t long ago when the idea of living without paper money in your wallet seemed impossible. But between credit and debit cards and automated funds transfers like electronic funds transfer of your paycheck and automated bill pay, more and more we may be getting close to that mythical “cash free society” we have heard so much about.
Most of us have both a credit and debit card in our wallet. But which one is the better choice for daily purchases? There are financial gurus like David Ramsey who contend that credit cards are dangerous because we are not aware we are running ourselves into debt. Still other well known financial advisors are steadfast against the rise of the debit card. So as consumers its up to us to know the good and the bad of both systems. Let’s discuss which card might be best for you to help clear up the confusion.
Why the Credit or Debit Buttons?
Sometimes it is confusing when you are using your debit card that you are asked to select credit or debit and push the key as to what kind of transaction you are making. You would think the computer would know its a debit card. If you select “credit”, the difference is how the funds are managed. If you use the “credit” option when paying with a debit card, you usually put a signature on the screen. That transaction works like a check so it takes a day or so for it to hit your bank account. But if you select “debit”, that charge works like an ATM and the money comes right out of your account.
This seems like a silly distinction but to the banks it makes a difference. The truth is that the bank that supports your debit card makes it a little harder to use pure debit which they call an “online” transaction because the bank makes more money if you use the “credit” key. They call the credit option an offline transaction because it doesn’t go straight to your account. Instead, it creates the equivalent of a digital check which makes its way through the system the old fashioned way. But that old fashioned way is better for the bank because they can charge the retailer a fee when you pick that option. So the bank wants you to pick “credit” which is why they make you put in your pin. Sometimes a bank will even charge you a fee for hitting debit just to make it advantageous to you to use the credit button and run up a bigger cost for the business you are patronizing.
Now, ordinarily what goes on between the bank and the retailer is none of our concern. But the banks take the issue to the next level when they impose fees on you, the consumer, for using the “debit” option to pay the bill like it was a cash transaction. By hitting you with a penalty for using the card the way it was designed to be used, that means how the debit card works does make a difference to you and I because it can cost you money if you make the wrong choice.
When Credit is the Only Option
When it comes to which card is more well accepted, its pretty much a wash. Many merchants who accept Visa or MasterCard have the mechanisms in place to let you use your debit card if you prefer. There are some situations where only a credit card will do such as renting a car. Watch who you do business with because some rental car agencies actually run credit check on you every time you pay with a credit card. That can make an impact on your credit score.
That Sneaky Credit or Debit Hold
It’s also good to know which businesses use a credit or debit hold when you use a particular card with them. Many hotels do this which means that the expected amount you will pay when you check out is frozen by a credit hold so you can’t use that credit until you check out. This practice is even used by gas stations and other businesses that are making sure they get paid. The system of freezing the funds is also used with a debit card which means real money in your checking account could be frozen for as long as couple days. Checks could bounce when you really do have that money so this is a practice to watch out for so it doesn’t cause you problems.
Click here to see Part 2: Which Card To Use – Credit Or Debit Cards? Part 2
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