Read This Before You Switch from Credit Cards to Debit Cards

There is absolutely no question that banks and credit card issuers are rushing to increase interest rates and fees ahead of credit card reform legislation taking full effect.

They are scrambling to find new sources of revenue to replace the ones that have served them so well but will now no longer be allowed by law. I am speaking, of course, about arbitrarily raising interest rates on people that currently carry balances.

Many people have grown quite angry with their respective credit card issuers, and understandably so. It has left many cardholders to ponder whether or not it would be a good idea to cut up their credit cards and use debit cards in their place.

After all, a debit card with a Visa or MasterCard logo will be accepted anywhere that a credit card is. You can use them to pay for things online, over the phone and of course, in person at any retail store that accepts credit cards.

But before you decide to cut up your credit cards they must realize that there are two sides to this proverbial coin and consumers should be aware of them both.

Advantages and Disadvantages of Using Credit Cards

As we have stated there are several disadvantages to using credit cards and they are becoming ever more evident to us. They include high interest rates and various fees including annual fees and penalty fees to name a couple.

Credit cards most definitely do have their good points though. First off, you have the ability to access funds in case of an emergency. You also are fully protected against fraud in case your card is lost or stolen. And most cards will offer purchase protection plans which makes it easy to return unwanted or defective merchandise purchased with your card.

Advantages and Disadvantages of Using Debit Cards

The main advantage of using a debit card is that you will never be charged any interest because you’re using your own money. As stated earlier debit cards can also be used just about anywhere that credit cards are accepted as well.

The disadvantages of using a debit card is that if your card is lost or stolen and money is taken from your account it could take a long time for the bank to clear it up and free up your funds. And if you don’t report it in a timely manner you could lose out on your money as well.

Debit card users must also be very cognizant of their balances or risk being overdrawn. Overdraft fees can be as high as $35 per transaction, even if you are only a few cents overdrawn. They are huge source of income for the banks that issue them because many times people are not diligent when it comes to keeping track of their balance.

Another disadvantage of debit cards is that there is no purchase protection like there is with credit cards. You’re basically at the mercy of the merchant that you made your purchase from same as you would be paying with cash. If you have a dispute you will have to fight it out on your own.

One final note; If you are going to cut up your credit card then you should know that it will have negative effect on your credit score for a period of time. With that in mind, if you are going to apply for a loan of any sort do so before you cancel your credit card account.

New Federal Rules on Bank Overdraft Fees Coming

Related Information:

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