Financial Tips | Debt Management

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11/19/07

How Does a Debit Card Work?

A debit card looks exactly like a credit card. It will have the same shape, color, and magnetic strip that a credit card has. A debit card is used almost exactly the same way as a credit card. In fact, there are times when a debit card is used exactly the same way as a credit card. For example, if you are at the grocery store and you want to pay with a debit card, you swipe your cad through the machine and type in PIN (PIN means personal identification number). If the bill clears your debit is approved and on you go. However, if you are in a restaurant, you card is swiped like a credit card and instead of having to type in a PIN, you have to sign a receipt.

So, if everything is exactly (or near exactly) the same as a credit card, what is the difference? The main difference (and the most important difference) is that a debit card is secured. In other words, a debit card is linked to a checking or savings account and uses that money to pay a bill. Put simply, a debit card is a glorified checkbook. If you do not have the money in the checking or savings account, your purchase will not clear (the purchase will “bounce”) and you will thus not be able to make the purchase.

You have probably all seen the television commercials for the Visa check card. This is a debit card. If you were to get that card, you would have to link it to a checking account of some kind in order to use the card. All of the national banks offer their customers a debit card when the customer opens a checking account. Getting the debit card from your bank is incredibly easy and convenient. However, if your bank does not offer you a debit card with your checking account, you can use other debit cards (like the Visa check card) with your checking account.

Debit cards offer much convenience, however, when people use debit cards, they tend to lose track of their spending. Therefore, if you use a debit card, I recommend that you still record your expenditures in your checkbook in order to keep everything balanced.

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