Debit or Credit?

Debit cards offer a different set of features than credit cards.

How do they work, and how do they compare with credit cards?

• A credit card is a line of credit. You borrow against it when you make a purchase, and “settle up” every month. A debit card is linked directly to your checking or savings account. When you use a debit card, your purchase is paid for with an immediate withdrawal from the account.
• With a credit card you may have to pay interest on your purchases if you don’t pay off the full amount you owe every month. With a debit card there’s no interest to pay but there may be costly fees associated with some cards or purchases, such as overdraft fees.
• If you encounter a problem with a purchase, a credit card gives you more time to challenge the charges. With a debit card and its instant payment system, it is more difficult to dispute the charges.
• When you use a credit card you are creating a credit history. But if you don’t pay your bills on time those missed payments can lead to a lower credit score, making it harder to borrow in the future. Using a debit card does not register on your credit history, because you are making purchases without accumulating debt. For those under 21 years of age, restrictions under federal law make it easier to obtain a debit card than a credit card.
• Under federal law, liability for a stolen credit card is capped at $50. If it is reported stolen before it is used, there is no liability at all. With debit cards, the cap is $50 but only if it is reported stolen within 2 business days. If a debit card is reported stolen after 2 days but before 60 days, the cap is $500. If a debit card is reported stolen after 60 days, all bets are off and the card holder’s liability is unlimited. Report any lost or stolen card immediately.
• Credit cards can offer options like earning rewards points on purchases, while debit cards make it easier to withdraw cash at ATMs.