As more and more American consumers see the risks of using credit cards for their purchases, debit cards are fast becoming the plastic of choice in the U.S. As a matter of fact, the switch from credit cards to debit cards has been a growing trend among consumers for a few years now.
In most cases, debit cards have many similarities to credit cards. They are essentially similar in form. They are supported by Mastercard and Visa. They also offer the same convenience of paying with plastic instead of cash and allowing cardholders to withdraw money when needed. The main difference between the two is that, when a cardholder completes a purchase using a credit card, he or she is taking out a loan to pay for that purchase while, when a cardholder uses a debit card for that same transaction, he or she is using his or her own money to pay for the purchase.
With credit cards, accumulating debts is virtually inevitable. With debit cards, its impossible because, unless you opt for an overcharge feature, once you've zeroed your account, you cannot make anymore purchases unless you deposit more money into it. Debit cards have therefore become the preference for people who want to have the convenience of credit card transactions while still keeping a tight control in their finances.
Debt card usage is definitely on the rise. Statistics from CardData show that while purchases from Mastercard and Visa credit cards increased to 40% since 2004, debit card purchases increased to 120%. Attempting to cash in on the trend, credit card companies are doing their best to attract more customers through the traditional hook they use for credit cards: rewards programs. These days, debit cards, much like credit cards also offer reward points and cash back programs for cardholders. However, there is a difference.
Debit cards generally have a weaker rewards points program compared to credit cards. For example, instead of earning 1 point per $1 spending, debit cardholders need to spend $2 to earn 1 point. Debit cards that offer rewards also come with an annual fee which increase as much better benefits are added. Also, while debit cardholders use a PIN to execute regular transactions, for reward transactions they have to opt for a signature transaction to get the reward.
Although debit cards present a great way for consumers to keep their finances in check, for the credit savvy, it can mean losing out on the attractive rewards programs of credit cards. Therefore the choice is between losing control of your finances and getting rewards points for purchasing with plastic. Consumers will have to choose which one is more important for them.