The Pros and Cons of Credit Versus Debit Cards

By: Tony William

Narrated by: Doug Cooper

Length: 1 hr and 12 mins

Publisher's summary

A generation ago, it wasn't all that unusual to be out for dinner with friends or at the register with a cart full of groceries, and realize you didn't have enough cash to cover the bill. But today, you're likely to pull out a debit or credit card, and not think anything of it. It's hard now to imagine a time when those non-cash options weren't available - especially if you were born in the 1970s or later.

Credit cards have been around since the 1950s, and debit cards were introduced in the mid-1970s. By 2006, there were 984 million bank-issued Visa and MasterCard credit and debit cards in the United States alone. Although the two types of cards may be used interchangeably, there are notable difference between them.

Let's start with debit cards. Debit cards are linked to your bank account so the money you spend is automatically deducted from your account. They provide a convenient alternative to cash, especially if you do a lot of shopping online. Debit cards can also help you budget. Use your card to pay your bills and day-to-day expenses, and your monthly statement will provide a good snapshot of how much you spend per month, and where it's going.

There's another benefit as well: Many banks offer "overdraft protection" that allows you to exceed your balance. But you'll end up paying interest, and maybe extra fees, on the money you borrow from your overdraft account.

Credit cards basically allow you to use someone else's money (the card issuer's) to make a purchase while you pay the money back later. If you do so within the billing period - generally, 15 to 45 days - you can avoid paying any interest on it. The problem arises, of course, when you don't pay the balance in full, and are charged interest as well. That can quickly add up. If it takes you two years to pay off a $500 balance, for example, and you'll end up paying nearly $100 more in interest. If you use them responsibly, credit cards can offer other advantages.

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