- Debit cards are normally tied to your checking account, so their use is limited to the available balance in your account. With credit cards, the credit limit the card issuer makes available to you determines how much you can charge. The card company can decide to raise your credit limit arbitrarily to encourage additional use, or you can request an increase directly from the company.
- With debit cards, the full amount of your purchase is immediately deducted from your account in most cases. This feature makes debit cards attractive if your goal is to avoid falling into the trap of revolving debt that can occur with credit cards. However, credit cards do allow you to delay paying for the purchase, giving you the opportunity to accumulate the money to pay in full when you receive the bill or to pay it off in installments.
- A major disadvantage of using credit cards is the accumulation of interest charges, as interest rates of 15 percent to 20 percent are not uncommon. However, you can avoid this by paying your balance in full each month. The credit card issuer may charge substantial fees for cash advances or if you are late on a payment. A benefit of debit cards is that no interest is charged because you normally pay in full upfront. Also, your bank may or may not charge a transaction fee for a cash withdrawal from an ATM. In the event of an overdraft, your bank may charge an overdraft fee.
- Some types of companies may be hesitant to accept debit cards because they may view not using a credit card as a sign of credit problems. Rental car companies in particular are sometimes leery because of the high value of the product they are providing. Some companies may request to check your credit or require a large deposit. You may also be limited to renting the less expensive vehicles instead of the luxury models or SUVs.
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