July 14, 2009The credit card industry is really taking a hit these days. People are losing trust on credit card companies and, given their recent actions, it’s easy to see why. Credit rate hikes, increased minimum amount payments and hiked fees are just a few of the things credit card companies are doing nowadays in what they ostensibly call “adjusting to the current economic environment”. Most people are, however aware that most credit card companies are doing what they are doing in order to ensure that their profits still flow when the credit card bill becomes active next year, on February.
Because of the growing stigma of credit cards, a lot of people are beginning to look for other choices. Some are moving towards debit cards. If you are using a credit card right now, you should probably think about moving to a debit card to protect your finances a bit better. Debit cards function essentially like credit cards, meaning that, with debit cards you can buy items using only a plastic card. The main difference is that, with a debit card, you have to make a deposit in your credit company which will then be used to fund your debit card purchases. It is an infinitely better arrangement for credit card owners. With a debit card, consumers are merely using the money that they placed in the bank. They don’t have to worry about interest rates and fees whenever they use their plastic.
Credit cards are much more dangerous, financially speaking. Whenever you use a credit card, you are paying off your purchase using a loan from the credit company. This loan is something which you need to pay off every month. It will also earn interest and, if you do not keep up with your monthly payments, you could get fined and be dealt with a higher interest rate. Definitely, debt cards are the way to go if you want to protect yourself financially.
However, some credit card companies are offering overdraft protection for debit card holders and, most of them are not informing their customers. An overdraft is when your purchase amount using your debit card goes over what is available in your bank. To cover the cost and to supposedly protect you from being embarrassed when your card is refused at the counter line, the credit company will allow you to overdraft by extending credit to you.
The practice of automatic overdraft protection in debit cards should have you worried. Whenever you do an overdraft, you will get the money but you will also take out a loan to cover the overdraft. Like all loans, it will also have interest. To avoid this situation, always be aware of your debit card limits at all times and opt out for an overdraft protection plan from your credit agency if possible.
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.