Should You Be Using A Debit Card Instead Of A Credit Card?

(This is a guest post by Greg Mischio via mortgageloan.com. Greg Mischio has been writing financial articles for over 15 years. Based just outside of Madison, WI, he has written for several online financial news sources, including the CUNA Mutual Group, Parson Consulting, and MortgageLoan.com.)

Consumers like to have plenty of options when they go shopping. Ever since the introduction of the debit card, their options now include more than just the merchandise. Now, they can choose how to pay for the merchandise.

In the game "Rock, paper, scissors," rock beats scissors, scissors cuts paper, and paper beats rock. The financial world has a version of the game called "plastic or plastic," which pits credit cards against the relatively new kid on the block—debit cards. Here’s a look at the debit card, including how it measures up to its older brother.

The big difference

The primary difference between credit and debit cards is that when you use the latter, money is immediately withdrawn from your checking account. It’s the equivalent of a check. If there are insufficient funds in your account, your debit card won’t work.

With a credit card, on the other hand, any charges you accrue are added to your credit card balance. You’re then sent a monthly bill for the accumulated charges.

PIN vs. signature

Debit cards can either require a signature or a PIN number to authorize withdrawal of funds. If you choose one that requires your signature, you sign a receipt from the cashier after each transaction, just like a credit card. If you choose a debit card that requires a PIN number, you must punch in that number on the card-swiping machine. Some debit cards are able to do both—you make the decision after you’ve swiped the card. To use the PIN number, you simply choose the “debit” selection on the machine. To use the signature option, you opt for “credit”.

Watch those fees

When you use a debit card, watch out for a variety of fees for transactions, minimum account balances, and international purchases. Check with the issuer of the card for clarification.

Account security

A debit card that can only be used with a PIN will provide you with an added level of security. If it’s lost, it’s unusable without the PIN. With a debit card that only requires a signature, anyone can forge your name to access funds.

Fraud protection used to be limited with a debit card. If there was unauthorized use, and you failed to report it in 60 days, you were responsible for the entire amount. Now, Visa and MasterCard have extended their zero liability to include any debit cards used over their networks, so customers are no longer liable for unauthorized charges. But this is a voluntary measure, and could be withdrawn at anytime.

In the rock, paper, scissors game, the key to winning is picking the option that trumps your competition. Now that we've looked at the debit card—including how it compares to its credit counterpart—you’ll win the game of "plastic or plastic" by choosing the option that works for you.

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