How Debit Cards Work

If you do not possess a Credit Card, it is not doom and gloom; there are Cards that would serve you even better.

If you do not possess a Credit Card, it is not doom and gloom; there are Cards that would serve you even better.  Much as Credit cards extend some credit facilities to their holders, the Debit cards extend your Bank Account to you.  In comparison, one allows you to dip your hand into their pocket and the other lets you dip your hand into your own pocket! 

It is debatable as which of the two is better, the former or the latter!  In our part of the world, it is not easy for someone to own a Credit card, leave alone use it, the associated costs and bureaucracies could be prohibitive.  As for the Debit card, all you need is a valid Bank account held in a Bank the offers the same service and you will be ready to go.

 There is nothing mysterious about debit cards. With their Visa and MasterCard logos, they may look like they’re masquerading as credit cards, but they do not draw money from the same source as credit cards. Debit cards, sometimes called checking cards, draw funds from your checking account, and are not a line of credit at all.

Many debit cards are actually dual debit/credit cards. You can use them as one or the other. When you make a purchase with such a dual card, the card reader will ask whether you want to use your card as a debit or credit card. If you use it as a debit card, you enter your personal identification number (PIN) to authorize the transaction. You may also have the option to get cash back when you make a debit purchase. This is like accessing an ATM at the same time as your purchase you simply consolidate your transactions

As you can see, the basic process of a debit transaction is not complicated. But why would you choose to use a debit card instead of a credit card?  Debit cards and credit cards each have advantages and disadvantages. The biggest advantage of debit cards over credit cards is that you don’t need to worry about interest rates, monthly bills and finance charges.

Since a debit card uses only the money you actually have, you won’t build up an unmanageable debt by using it, as you might with unchecked use of a credit card. Credit cards, after all, accrue interest on unpaid balances. Unless you pay off your balance every month, you will always end up paying more for the purchases than they actually cost, reason being that, you pay for them plus interest!

Credit card limits are often quite high, sometimes significantly higher than the average monthly balance in your checking account. If you aren’t careful, your credit card balance can grow out of control. The limit on your debit card, on the other hand, is whatever you have in your checking account.  Another advantage of the debit card is how easy it is to acquire one.

You can get a debit card with pretty much any checking account, whereas you can obtain a credit card only by applying for one. A debit card does not require an investigation into your credit history; most credit cards do require a credit check.  Just as the advantage of a debit card is that it draws on your actual funds, the disadvantage of a debit card is that you are limited by those funds. You can overdraw your checking account, which can result in your bank charging an overdraft fee.

(To Be Continued)


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