The ever increasing presence of credit card debt in our society has prompted many consumers to opt in favor of a debit card. The traditional debit card only allowed you to take money out of an ATM, had limited acceptance in stores and couldn’t be used overseas or online. Fortunately, things have come a long way…

A Visa or MasterCard debit card looks and feels virtually the same as it’s predecessor but is accepted everywhere a credit card is. There is, however, a key difference between the two: Whilst a credit card lets you borrow other peoples money to make purchases, a debit card takes money straight out of your bank account at the time of purchase. Simply put, with a debit card you can never spend what you don’t have.

Paradoxically, this is both the debit cards greatest asset and its worst shortcoming. Whilst you’ll be sure to avoid the painful world of credit card debt entirely, you’ll also miss out on the freedom of being able to buy now and pay later. Do the benefits outweigh the costs? That will depend entirely on your personal spending habits. If you usually pay your bills late, are prone to being in debt or tend to make impulse purchases on a regular basis then you would probably be better off with a debit card.

On the other hand, if you are usually up to date with your financial commitments you may find a debit card somewhat restricting. As well as foregoing a convenient access to credit, debit cards lack many of the bells and whistles found on a typical credit card – for one, you probably wont find any reward programs to speak of and you can forget about other ‘luxury’ features like a concierge or travel insurance.

Having said that, nothing prevents someone from having both a credit and debit card simultaneously. Indeed, many have found using a combination of the two is the best option. Typically the debit card is used for groceries, petrol and other small purchases whereas the credit card is used for expensive or potentially problematic purchases like buying something online or over the phone. Why? Because if you later find you’re unsatisfied with your purchase it’s far less problematic getting your money back with a credit card. Look at it this way – if you use a debit card and get scammed it’s your money that’s been stolen, not the banks!

A final mention should be made of a recent addition to the marketplace – prepaid debit and credit cards. The difference with a prepaid card is that instead of it drawing directly from your bank account, you ‘load’ it with a certain amount of money or credit beforehand which you can then ‘top up’ or replenish at your leisure. Prepaid cards can be useful for those who have serious difficulty sticking to a budget or as a means of limiting your spending. Be aware, however, that prepaid credit and debit cards often come with relatively high transaction and ATM fees.

Summary: Debit cards are an excellent way to enjoy the global acceptance of credit cards without having to worry about falling into the debt-trap. Nonetheless, those who usually pay their bills in full and on time may find a debit card does more harm than good. It’s inability to access credit and relative lack of features may hinder rather than help the financially disciplined.

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1. Debit, Credit, Charge It: Your Choices in Plastic
2. An Overview: Prepaid Debit and Gift Cards
3. Debit Cards Causing Overdraft Fees
4. Understanding Debit vs. Credit With Your Debit Card
5. Decoupled Debit Cards