The English language has some funny properties and word associations. The word “debit,” for example, seems to carry a permanently negative connotation. Debits seem bad, liabilities, even though every line in double entry accounting is both a debit and a credit. It’s possible that this connotation makes some people resistant to the idea of debit cards, while they freely spend themselves into oblivion with a credit card.
Getting around the credit/good, debit/bad idea, one needs to look at how debit cards help and hinder management of personal finances. They can add considerable convenience when accessing a bank account, without the risk of overspending into debt and incurring interest charges.
How Debit Cards Work
The function of debit and credit cards often seem similar at the transaction level. Both can be used with ATMs to withdraw cash. Each is widely accepted as a purchase medium when shopping, dining or buying a service. The primary difference is that debit cards spend money that you currently have in the account attached to the card. Credit cards, on the other hand, spend the credit card company’s money, for which they will bill you later and, if you’re not repaying currently, charge interest on the balance.
Debit Card Advantages
- Easy to get: If you have a bank account, it’s usually just a matter of asking for a debit card connected with that account.
- Financial Safety: Your personal information number exists only in the magnetic strip on the card, and your account can’t be accessed without it. You don’t need to carry cash or checks to access your money.
- Convenience: With swipe, chip and tapping technology, payment is easy and fast.
- Worldwide Acceptance: Many debit cards provide access to ATM and purchase terminals around the world through the same networks used by credit cards, such as Cirrus and Maestro.
Debit Card Drawbacks
- Whether it’s truly a drawback or not is debatable, but debit cards subtract funds from your account quickly, with no grace period and sometimes almost instantaneously. Therefore, you can’t spend money you don’t have. Credit cards act as loan tools fundamentally. You borrow money until you receive your bill, so you can make purchases that exceed the money you have on hand and in your accounts.
- When purchases aren’t immediately taken from your account, such as over weekends or holidays, you may run into overdraft through overspending.
- Some institutions may not offer the same protection against fraudulent use as with credit cards. Check with your bank to find out your exposure to theft and fraud from your debit card.