Debit cards and credit cards are two very different animals, although some cashiers make it seem as if both co-exist on a single card. The major difference is how much time you have to pay for your purchases.
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When you hand a cashier your debit card do they ask debit or credit? The question is moot, MSN Money explains. Your debit card takes money from your bank account regardless of how you answer.
The Useless Debit or Credit Question
Debit cards are linked directly to your bank account and withdraw money from your account regardless of the way the transaction is described, MSN Money says. The only difference between running your debit card as a debit or credit transaction is how you provide your personal information.
A debit transaction on your debit card requires a PIN, or personal identification number. A credit transaction on your debit card typically requires a signature but no PIN.
Both transactions take money from your account, although it may take a bit longer for the transaction described as credit to clear.
If you truly wanted to turn the transaction into a credit card transaction, you would need to use a credit card. Despite the misleading question, a debit card cannot function as a credit card per se, with the option of receiving credit to obtain your purchase and pay for it later down the road.
Details on Debit Cards
Debit cards automatically take funds out of your bank account, which can be a mixed blessing. Because you can easily watch your bank account dwindle with each transaction, such a setup may be able to help you control your spending, The New York Times notes.
When your account balance hits zero, however, you can overdraw your account if your bank employs automatic overdraft protection. That protection may help ensure you still receive whatever you are purchasing at the moment, but it typically comes with an overdraft fee and even interest charged from using your overdraft account, The Times says. The fee can range as high as $35, according to MSN Money, which can start to add up if you don’t pay attention to your overall balance.
Credit Card Lowdown
Although you won’t be faced with overdraft fees using a credit card, you may be more likely to spend when you don’t suffer the immediate effects of a shrinking bank account. The buy now pay later philosophy may cause you to more easily lose track of your overall spending until you receive an astronomical monthly bill. Unless you completely pay off your balance of credit card monthly, you will face interest charges and, if you don’t pay on time, late payment fees.
That does not mean using a credit card instead of a debit card does not come with some advantages. Fraud protection is a major advantage of credit cards, both MSN Money and The Times note. You are protected from being liable if your credit card is lost, stolen, or used without your authorization. Once debit card transactions are processed through your bank account, on the other hand, your money is already gone.
Although you may be able to eventually recover your money, eventually is the key word. You will typically only be reimbursed after the bank researches your claim and deems it valid, a process that may take several weeks.
The Times offers two more perks of using credit cards over debit cards. One is building up a solid credit history using credit cards, provided you pay off your bills on time. The other is the rewards that may come from various types of credit cards. Although certain debit cards may offer rewards, they are typically not as generous as those you find from credit card companies.
One More Sneaky Debit Card Detriment
Debit cards have one more mark against them, MSN Money says, that thing called blocking. Blocking is when a merchant blocks off a chunk of money from your account in anticipation of your purchase. This scenario may come up if you are booking reservations for a trip or other purchase in advance and use a debit card to secure your reservations.
Rather than wait until you actually arrive, merchants may block off the funds you intend to spend in order to ensure you have money to pay for the venture.
Although blocking does not make money ever leave your account, it does render it inaccessible to the account holder. It may be more beneficial to make reservations and other advance transactions so that portions of your bank account are not blocked off from your use.
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