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    Credit or Debit? Plastic Explained

    Sunday, December 6th, 2009 at 1:35 PM | Banking, Spending

    credit-card-main_Full

    because there is some confusion on what types of plastic are out there. You bank
    sends you a card but what does it really do? Here is my definition of a few commmon types of plastic.

    You might have a good idea about how your cards work, but it seems there is still a whole lot of confusion on what types of plastics are out there. Your bank sends you a card, but what does it really do?

    Credit Card – Most Widely Understood.
    This is not your money. You simply sign and present this card when you purchase something. You can use it interest free for about 30 days, then you must pay it off, or make minimum payments plus interest.


    Check Card – My Personal Favorite.
    This is your money. Any purchase with this card comes straight from your checking account. You simply sign and present this card when you purchase something (just like a credit card).  This card also has all the funcationaitly of a debit card defined below.

    Debit Card/ATM Card – Practically Extinct.
    This is your money. This card only allows you to access funds via an ATM with use of your PIN or with merchants that accept debit/ATM cards. Merchants can charge a fee for this service, since you can ask for cash back. Generally the only reason to use this type of payment is when you need cash back, or when the merchant doesn’t accept credit cards.

    Type Issued By ATM Access Signature Required PIN Required LOGOS Merchant Fee/Minimum Allowed
    Credit Card Bank/Credit Card Company YES* YES NO VISA/MC NO
    Check Card Bank YES* YES NO VISA/MC NO
    ATM/Debit Card Bank YES NO YES BANK/DEBIT YES

    * Note: Dependent on your credit card company. You must also have a pin (sent to you when you first get the card many times.)
    ** Note: Many banks have varing polices on over-drafted transactions. They can even be different for a Debit vs. Credit transaction. It is possible to overdraft your account with either, but generally, it is easier to do it with a credit transaction (compared to debit). Debit transactions check your account in real time, where as credit simply looks for an approval (there can be floating transactions, and unsettled transactions).

    Allowable Fees
    You will see all sorts of fees and minimums as you use your plastic around town. Most of which most likely are in violation of VISA/MasterCard policies. Generally the only type of transaction that permits a fee (charged by your merchant to you) is an ATM/Debit transaction. But wait? Why all the minimums and fees for using the other types of cards? The answer, for the most part is ignorance. You can dispute these fees also.

    So What Should I Use?
    Well that depends on your personal situation, but in most cases a check card will be the best type of card for the majority of your purchases. For example my wife and I have a limit, for example let’s stay it’s $20. Anything over $20 we use a credit card, anything below we use a check card. There are a number of reasons we do this but the main reason is simplicity. We don’t have to worry about overdrawing our checking account since the credit card is used for all larger purchases. We get more reward points if we use a credit card (we still earn points on check card purchases but its a smaller point system). You can find your own system.

    And if you are a person that still uses cash, you can use this same check card at most ATMs. Just remember only to use your PIN when you have to. Running a transaction as a credit (rather than a debit) not only can earn you reward points, but gives you more protection (like a credit card) and doesn’t permit the merchant to charge extra for it. In addition, using your checkcard makes it easy to track your expenses.

    Talking Point: What is your favorite card to use and why?

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