Credit vs. Debit Cards – Which One Should You Choose

Debit or credit? According to a study, most millennials prefer debit cards, since they appear to be the simplest and most straightforward choice. However, credit cards offer much more benefits than debit cards.

credit vs debit

What’s the difference?

In simple words, the difference is where the money comes from. With debit cards, the funds are deducted from your bank immediately after purchasing something, while a credit card borrows money from the issuer up to a specific limit.

When should you use each one?

When making a really small purchase at a shop, you should choose to pay with your debit card or even with cash to avoid the processing fee. It is recommended to use credit cards for more significant purchases since they can give you anti-fraud protection and warranties.

Pros and Cons of Debit Cards

  • With debit cards, your daily spending is more transparent, since the money is debited automatically from the bank account. By doing that you won’t fall into debt, which is good for compulsive spenders.
  • Debit cards have little to no fees.
  • They allow automatic transfers to your savings account.
  • You can also withdraw cash with these cards.
  • Making purchases with your card won’t affect your credit score.
  • Debit cards are not as secure as credit cards. If you wait between 2 and 60 days to notify unauthorized purchases or that your debit card is missing, you could be held liable for up to $500 in fraudulent charges, depending on the issuer.

Pros and Cons of Credit Cards

  • There are way more benefits about using credit cards. With them, you can earn points, miles, rewards, and cash-back. These simple perks will help you save some money on your purchases.
  • Credit cards are also more secure when shopping online since you’re only liable for up to $50 if your credit card is stolen or lost.
  • They also provide additional warranties for purchased items, and other types of protections.
  • If you need to rent a car, most of the issuers offer a waiver for collisions.
  • You can also dispute damaged goods or fraudulent purchases.
  • Contrary to debit, credit cards help to boost your credit score since payment history is one of the most significant factors on your report, and the issuers report to the main bureaus.
  • Annual fees, over-limit fees, late-payment fees and other penalties, in addition to monthly interest on the card’s outstanding balance.
  • It’s very easy to fall into temptation. You need to be careful in order not to overspend.

Best Prepaid Cards of 2017

If you don’t qualify for other cards, or simply want to save some money, you might want to consider getting prepaid cards.

credit cards for bad credit

Prepaid cards are more convenient and have fewer fees when compared to a regular credit card. Some even offer great benefits like cashbacks, and they can even help you improve your credit rating.

Western Union NetSpend Prepaid Mastercard

This card offers some benefits like free balance inquiries via SMS. Western Union Money transfers are really fast and they’re not charged. If you deposit at least $500 dollars you can update to a $5 monthly plan. There’s an optional 5% APY Savings Account. There are over 130k locations where you can reload your card.

American Express Bluebird

With this card you won’t pay foreign transaction fees. ATM access is free. You can reload your card for free at almost any Walmart. Money transfers out of your checking or savings account are also free. There aren’t overdraft or stop payment fees and you can pay bills with online bill pay or paper checks.

Movo Virtual Prepaid Visa Card

There’s no need to have a credit card to sign up for this. You won’t pay monthly fees or other fees for inactivity or activation. No fees for purchases made with the card.

You can withdraw cash for free, but unfortunately, there are only 6,000 ATMs where you can do it.

You can reload your card via Paypal or Venmo, direct deposits, transfers, or with cash at some qualified stores.

PayPal Prepaid Mastercard

PayPal offers some benefits like 1% cash back.  If you receive money via PayPal, you can use it directly, since there’s no need to transfer your balance to a regular bank.

Chase Liquid Card

With this card you won’t have to pay purchase fees. You can add balance to your card via direct deposit, bank transfers and at Chase ATM’s. Holders can withdraw money for free at Chase ATM’s. Unfortunately, there is a $4.95 monthly fee.

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5 Fast Facts On Prepaid Debit Cards

Credit and debit cards aren’t the only types of cards available. Prepaid debit cards are becoming more and more popular, and they are often productive and useful tools for managing money. How do these cards work, and should you get one?

bad credit

What Is A Prepaid Debit Card?

A prepaid debit card lets you pay for things in the same way that you would with a debit card. More convenient and often safer than using cash, these can be used wherever their payment network is accepted. It is also called a pay-as-you-go card or a general-purpose reloadable prepaid card, which is the more formal name.

When you get this type of card you are effectively opening a transaction account that is held by a bank.

It is only possible to spend the amount of money that you actually put into the card’s account, and prepaid cards usually have several ways you can do this. Some cards also are able to link to a checking account for online transfers.

READYdebit® Visa Prepaid Card
Who is it for?

Those who don’t have a bank can benefit from prepaid debit cards in addition to those that do. It might be a solution for those that might not have access to or even want a bank account or credit card.

These cards can be helpful tools for budgeting without needing to worry about overdrawing a checking account. These are also useful for those on a fixed income, teenagers who get allowances, and relatives that may be visiting from a foreign country.

Features

Prepaid cards are often very different, but the following features are fairly common:

ATM access: Some prepaid cards will offer access to free nationwide ATM networks, including MoneyPass and Allpoint, or they may have access to branded bank networks.
Reload options: Money can usually be added to a card in lots of different ways. This includes setting up direct deposits, loading cash at participating retailers, and depositing checks. Some cards will also let you make mobile check deposits or online transfers from your smartphone.
Fees: These can have fees for a variety of activities, such as activating the card, using ATMs that outside of the network, and making deposits. Although there is usually a monthly fee, this can sometimes be waived. Some cards also charge a fee for every purchase you make and every ATM transaction.
Amount limits: There may be a limit to how much you can withdraw or reload during any given period.
Protections: They don’t currently have the liability or fraud protections, but that will change next year when new rules go into effect. Some cards currently offer purchase protections, but disputing unauthorized transactions or correcting errors can often be very difficult. Many have federal deposit insurance, so your money will be covered if an issuer declares bankruptcy.
Expiration dates: Since prepaid cards have expiration dates, you will need to be sure you’re aware of whether or not the company will reissue your card. You don’t want to be stuck with an expired card with an unusable balance on it.
Other features: There are even some prepaid cards out there that let you pay bills online and have a number of copies to share with family members. Even fewer offer rewards that include cash back from purchases.

Prepaid Cards vs Credit and Debit Cards

They all have some differences, but the main difference comes down to when you pay. With prepaid debit cards, you pay before; with debit cards, you pay now; and with credit cards, you pay later.

Limitations of Prepaid Debit Cards

Because prepaid debit cards aren’t really credit cards, they are unable to be used to build credit. If you want to do that, you should want to consider a secured credit card.

Another downside is that they don’t usually come with all the features you can expect to receive from a checking account, and this includes access to an ATM or branch network, online banking, or the typical bank services.

Your prepair debit card can help you store your money safely so you can spend more productively. Make sure that you compare options so you can find the card with the lowest fees and the features that are best for you.