Debit v. Credit Cards: Which is Best For Everyday Use?

Debit cards and credit cards are some of the most widely utilized modes of payments, often surpassing cash in their frequency of use. While this is in large part due to their convenience, both forms of cards have become commonly used to conduct both direct and indirect transactions on an enormous variety of scales. Yet their omnipresent status in our everyday lives seems to conflict jarringly with the number of misconceptions that many people have about the ramifications of using these cards and how the two are similar and different from each other.

A debit card exists in theory as a replacement for checks and it fulfills the same purpose. It is not a form of credit card as it is unattached to a line of credit. Consequently, money spent through debit cards comes directly from your checking account, which exists as a repository of cash for ready use when you need it at short notice. However, overuse of debit cards and failure to keep track of how many payments you make using it can deplete your account and fuel a toxic cycle of debt. Since debit cards are not linked to a line of external credit, many who fear using credit to cover everyday expenses feel more secure about using debit cards instead and believe that by doing so they are being fiscally responsible. However, this may not be entirely true.

While an attempt to spend money taken from one’s own earnings rather than via credit when possible is laudable, it is only productive if that expenditure itself is below the value of one’s checking and overdraft protection accounts. If someone ends up spending more money than they should through their debit card, they are not doing themselves any favors. Many people are unaware that when you are due to make a payment due to debit card spending, cash will be withdrawn from your overdraft protection account if your checking account is empty. To be fair, all of us make mistakes, and you can protect yourself from overdrawing your account by asking your bank to adjust the settings of your account so that you won’t be able to withdraw via debit (and thereby incur debt) if you’ve exhausted your funds.

When choosing whether to use debit or credit in a basic transaction, first understand how they differ at the Point of Sale (POS). As you prepare to pay for an item, you are asked to choose between the two (presuming you do not opt for any of the other choices), but each clears your account in a different manner. When you use a debit card, the transaction clears your account immediately, whereas there is a variable time lapse in the case of credit cards. This depends on the merchant with whom the transaction takes place, as all credit transactions are submitted to merchant service banks for processing. This may take up to 60 days, but it usually only takes a few days for a credit transaction to clear. Nonetheless, the complications involved make it even more important to document and secure a record of credit transactions.

Understanding the differences between credit and debit is essential to responsible use of both sources of capital. The similarities between the way we use credit cards and debit cards might lead some to consider them interchangeable, but they serve different purposes and should be recognized as such.

Siddarth Nagaraj

Siddarth Nagaraj is a junior at the University of North Carolina-Chapel Hill. He is currently pursuing a double major in Global Studies and Political Science with a minor in Geography. Originally from Winston-Salem, North Carolina, he is interested in socioeconomic inequity and cultural diversity in developing nations. He is also a Section Editor for The Hill, UNC’s only nonpartisan political review, and has written multiple articles on international affairs for the quarterly publication.

Since the summer of 2010, he has volunteered as a Savings Officer for the Community Empowerment Fund (CEF) in Chapel Hill, which seeks to promote financial literacy and help fiscally strained individuals achieve self-sufficiency. Apart from writing, Siddarth enjoys reading, travel, and watching British television programs. Upon graduation, he plans to earn a graduate degree and seek employment in the field of international development.

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