Debit and Credit Card Offers Are not Created Equal

A debit card and a credit card may look an awful lot alike - they both have the same Visa or MasterCard brand on them but they work completely differently.

If you are entertaining any credit card offers or you want to apply for credit cards on line you should be sure what you are looking for and which kind of card is which. You should also consider how you use debit card or a credit card in your overall financial approach to reaching your personal goals.

Whether you have bad credit or an excellent credit score, you should consider using both types of cards for certain situations.

Debit Cards Carry Less Risk

A debit card is a bank card. It is a way to use the funds in your bank account for purchases and bill payments made directly at your dentist's office or your utility company. When your debit card is swiped the amount of the purchase is immediately deducted from the funds in your bank account.

This makes a debit card less risky for people who tend to over spend. Because it uses the funds that you already have available in your own account, you can only use what is actually there. You cannot spend more than you have in the account and this can be a great way to stay on track with your budget.

You are also not at risk for damaging your credit score when you use your debit card. Because you are only accessing your own money, no-one is reporting this activity to a credit reporting agency.

Credit Cards and Their Risks

Credit cards like Visa, MasterCard, Discover, and American Express function quite differently than your debit card does. These cards provide you with funds that are not your own. Whenever you use them, you are borrowing money from the credit card companies for your purchases or bill payments. They are loaning you the money and you will have to pay it back later with interest.

Your risks using credit cards are mainly that you can easily overspend. Knowing there are funds available (albeit loaned funds) means buying is irresistible to many people. This can create burdensome debt and too much debt can mean that your credit rating may suffer.

Your monthly budget also can suffer if you overspend on credit cards. Making payments on purchases plus interest can mean that those gorgeous new shoes you couldn't resist or that fantastic new fishing rod are still being paid for many months later.

In Canada most banks provide you an ATM card that is also your debit card. You can use this directly at most retailers through the Interac system and at all ATM's for cash. In the USA however, debit cards are generally issued using the Visa or MasterCard system and this is why they carry those logos on the cards.

In both the USA and Canada most credit cards also work at ATM's for cash advances. Remember that cash advances on your credit card are borrowed money. Some cards charge higher interest on cash advances than they do on purchases as well, so think about how much that cash is costing you.

If you withdraw $50 from an ATM using your Visa or MasterCard and you pay 18% on cash advances, that $50 is now $50.75 if not paid within the first month. If you are charged $2 cash advance fee, that $50 is now $52.75. If you only make the minimum payment on your card you will financing the finance charges at this amount rolls into the next month.

You can see how a little cash that is used from your credit card can turn into a lot more for you to pay back than you got out of it. This is the main risk in using credit cards for cash.

Using your debit card for cash usually costs nothing. Unless your bank charges a per transaction fee for withdrawals you won't pay for accessing your own money.

Fees for Debit and Credit

In the USA and Canada you will find some banks that provide you with your debit card fee free with no transaction limit. Other banks charge a few cents each time you use your debit card or if you use it for a cash withdrawal. There is no annual fee for a debit card.

Credit cards sometimes charge an annual fee. Especially cards with low rates or rewards you will often be charged this kind of fee. Your credit rating will often dictate which credit card offers you get and how good the rates and fees are on those cards.

Many people feel that both debit and credit cards fit into their finances each month. Groceries and small purchases can be paid for using their debit card so that these monthly expenses are not creating debt of any kind. Planned large purchases and emergencies can be dealt with using credit cards. This keeps the debt load down but leaves some room for unexpected expenses in life.