Debit vs Credit – Which is Safer?



UPDATE; Over the next month my family is moving across the country to a new home. Please enjoy a variety of guest articles from top notch bloggers and sponsors. Also, catch up with earlier favorites from Barbara Friedberg Personal Finance.  

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Aren’t Credit and Debit Cards the Same?

Credit and debit cards seem, on the surface at least, much like each other. In fact there are several important differences worth exploring that might save you money.

The credit card system is based on the credit worthiness of the user where the card issuer provides a revolving line of credit to the user. This means that the user is effectively spending the issuer’s money.

The card issuer is the bank or institution to which a user will apply for a card.

The debit card system is based on the account holder’s personal account details. While there are some subtle differences, a debit card is best understood as a form of advanced ATM card.

Again, the debit card may be operated by Visa, Mastercard or one of the local equivalents. The important distinction is that with the debit card, you are spending your own money.

This means that with a debit card, you only spend what is in your account and, unless previously agreed with your bank, you are limited to your available funds.

What Happens When You Spend More Than is in Your Account?

In reality this is not always the case with a debit card, and in fact you may be able to spend more than your bank balance, but you will be charged for this facility.

In the US you have to ‘opt in’ if you want this facility, but most issuers will stop any transactions that are over and above your balance.

What Happens When You Go Over Your Credit Limit?

With a credit card, you have an agreed limit that you cannot exceed. If you pay off your balance within the “grace period” you will not have to pay any interest. However, in some cases, if your balance is $1.00 short of full payment you may be charged interest on the full amount that you spent for the preceding period since the balance was zero.

The methods of calculating interest are complex and differ between institutions. It is always a good idea to get a firm handle on the fine print before signing.

Should one be a victim of fraud, that is, you lose your card or it is stolen and somebody tries to use it, then you are better covered with a credit card than a debit card.

In the US, the customer is liable up to $50 if the card is reported lost or stolen within two days (48 hours) of the theft or loss. In some cases, the issuer will swallow this cost to maintain customer loyalty.

However, between 2 days and 60 days after the loss/theft is noticed, the credit card issuer is still liable for all funds over and above $50 but in the case of the debit card, the customer is now liable for funds spent up to $500. (Barb’s comment, when my credit card was compromised, the company waived my $50.00 liability)

There is relatively good consumer protection on both debit and credit cards and until recently, both Visa and Mastercard prohibited minimum/maximum spends on cards controlled by merchants.

There are advantages and disadvantages to both card systems and your choice will depend on your personal spending habits. (Barb’s comment; I use a combination of both debit and credit, as well as some cash)

Guest post by Money Supermarket, from across the pond, with international applicability.

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7 Responses to Debit vs Credit – Which is Safer?
  1. retirebyforty
    June 27, 2011 | 5:42 pm

    Good luck on the move! I know it’s already a lot of work just moving to a different side of town.
    We rarely use the debit card and really try to minimize the credit card usage as well. We use cash more these days.

  2. Krantcents
    June 27, 2011 | 7:16 pm

    The benefit of credit cards for me is convenience, cash flow and rewards. The negative aspect of debit cards is it is the same as cash. Since I pay the entire balance of my credit card, I see no negatives.

  3. Buck Inspire
    June 27, 2011 | 9:04 pm

    Interesting post. I am more of a credit card user. I pay off the balance to avoid interest. I like how I am more protected than a debit card and it is nice to rack up rewards. But in the wrong hands, credit cards could be more dangerous than a debit card.

  4. Robert @ The College Investor
    June 28, 2011 | 12:17 am

    I love using my credit card for everything. I love the rewards and pay it in full each month!

  5. Dana
    June 28, 2011 | 1:19 am

    For me, it is the debit cart that safer since cannot spend more than what in my account.

  6. Barb
    June 28, 2011 | 7:04 pm

    @Retire-Thank you for your well wishes, we need lots of good luck these days :) Cash? It’s rare to see folks pull out the bucks these days. Do you track your spending?
    @Krantcents-Don’t you love those rewards? I use most of my rewards for gift cards to retailers I ordinarily frequent.
    @Buck-Thanks for the caveat, credit cards can be dangerous in undisciplined hands.
    @Robert-Get rewards for paying total bill on time—- good deal! I have only missed a complete payment once, because I lost the bill :)
    @Dana-Debit cards are a great spending valve. No way of overspending.

  7. John Shriber
    August 31, 2013 | 1:47 pm

    Advanced fraud protection services are usually available an add-on service.
    Do you think that the big three set this system up entirely to protect
    the consumer’ Is this the credit reporting agencies
    way to deal with or punish credit repair mill dispute letters’ Is another way the credit reporting agencies
    are working with creditors to sort out the good from the bad credit risks.
    These are just the simple guidelines on how to check the
    orders’ Big online businesses have hundreds and
    thousands of orders per day, so it becomes impossible to check each and every transaction.

    Basically, there are two reasons that someone would want to steal your credit
    card.

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