Credit or debit the right one can cut your costs and even make you money.
If you're like many consumers, you have a deck of (plastic) cards inside your wallet debit, credit, prepaid or perhaps you're flooded with offers in the mail. In either case, the key question is, which card is really best for your budget and your lifestyle?
Here's the inside story.
In a nutshell • Think of a debit card as an extension of your checkbook. It's linked to your checking account and debits it when you buy something, rather than giving you a line of credit. (The MasterCard or Visa logo you may see tells you what company processes the transactions.)
Pros • Debit cards are all about reining in spending, because you're limited to the funds in your checking account.
Cons • There are several big ones. Debit cards don't build credit, meaning they can't be used to create a credit history and/or credit ratings or scores. Also, if you opt for overdraft protections (which allow you to swipe and pay even if you don't have the funds), you can dig a pricey hole if you overdraw your account. Spending more than the balance is akin to taking out a loan. Also, unlike a credit card, this kind of plastic still offers little legally backed purchase protection or travel insurance. And each card or bank has its own policies on fraud and/or theft. For most debit cards, you're liable for only up to $50 worth of unauthorized charges if you inform the bank within two days; wait longer and that goes up to $500 or more.
In a nutshell • These allow you to swipe and pay with someone else's money. That's how credit cards work, by extending you a loan (with a limit) that you can pay off either with no interest before the payment due date or with interest otherwise.
Pros • If you pay off your balance within the payment period, a credit card can be free and offer perks such as rewards, cash back, purchase protection and travel insurance.
Cons • Even after the 2009 Credit Card Act, which put caps on fees and restrictions on when penalty interest rates can be applied, credit cards can damage you financially if you carry a balance. If you can't stick to a budget, try to build credit carefully, using the card only to purchase one regular item such as gas then paying it off every month.
The best deals
Debit cards • PerkStreet Financial Platinum Debit MasterCard (perkstreet.com). This card has no monthly activity fee, and free checking offers an unlimited 1 percent back on purchases (2 percent at certain retailers, such as Amazon; 5 percent on rotating categories), plus free transfers and direct deposit. It can be used at 42,000 free ATMs.
Credit cards • If you carry a balance, try Discover More Card (discover.com), offering 0 percent on balance transfers for 15 months, no annual fee, and after 15 months, an APR of 10.99 percent to 20.99 percent (you'll need excellent credit for the lowest rate; higher rates may apply, based on your credit history).
If you don't carry a balance, try Citi Forward Card (citicards.com), with no annual fee; a $100 gift card after signing up for paperless statements and spending $650 within the first three months; five reward points in every dollar spent on restaurants, books, movies and music; plus one point for every dollar spent on other purchases.