Using Your Debit Card to Save You Money

Many people have both debit and credit cards in their wallets, but they do not use the right card for every purchase. What kinds of purchases are better suited for the credit card, and which ones for the debit card? Read on to find out.

Banks created debit cards for checking account customers to have a simpler, faster, and more convenient method of accessing their checking account funds than writing out a paper check. Thus, debit card purchases are purchases that one would, in the past, normally write out a check for. Getting groceries, gas, paying monthly household bills, or other small daily-type purchases are ideal purchases for the debit card, because they are ones that check writing could be substituted for. These types of purchases are typically budgeted for, and there is little risk of over-drafting the checking account because the expenses the debit card is used for are expected.

Most debit cards will not allow users to spend more than is in their checking account; when a cardholder tries to make a purchase that is more than their account balance, the card is typically declined and the cardholder must find another way to pay for the purchase besides the card. Yet other cards do allow such debits to complete, but then charge the account holder additional fees and penalties for over-drawing on the account. Such added expenses can add up quickly, sometimes costing more than the original transaction amount itself.

On the other hand, credit cards are for the exact opposite. Consumer credit cards were designed for larger purchases that individuals could not pay for immediately at the time of purchase, for which no other type of installment or payment plan was available, purchases for which the credit card's interest rate was lower than any alternative financing rates, or for emergency, unexpected, or last-minute purchases. Credit card companies designed their product with higher balances (ideally) because they recognized that customers would use them for larger purchases yet would carry balances on them; that is why the interest rates on credit cards are typically very high.

For individuals who abuse the card or spend recklessly, a credit card can lead to many very serious financial problems. The best way to use a credit card is to have it set to a balance that is not unreasonable--there are some credit cards available that have extremely high lines of credit, even unlimited--and to choose one with the lowest interest rate possible. Then, tuck the card away and save it for absolute emergencies, when there is no other alternative but to put a purchase on the card. When the bill comes, of course it is in the card holder's best interest to pay off the balance in full, but if that is not possible to pay off as big of a chunk as they can. Paying just the minimum amount required is a sure way for the fees, interest rates, and penalties to snowball the amount the cardholder owes quickly out of control.

Knowing the differences between credit and debit cards and what types of purchases they were intended to pay for can help cardholders plant heir finances better and avoid spending too much, over-drawing an account, or making other unwise financial decisions. Understanding one's financial boundaries and spending within them is the absolute best route for people to take no matter what vehicle they use to spend their money.