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.

The Truth about Secured Credit Cards

A secured credit card is a credit card that is that is tied to a monetary fund of some kind (whether it is a deposit, bank account, or some other account). The monetary fund can be accessed and used by the credit card company in the event that the credit card holder defaults on a payment. These kinds of credit cards usually have an obscenely high interest rate and an inordinate amount of fees. Basically, they are terrible credit cards that target people with bad credit.

First and foremost, never get a secured credit card unless you absolutely have no other choice at all. In fact, even if you have no other choice, you should again analyze whether you should get a secured credit card. As I stated, secured credit cards have terrible interest rate and a vast amount of fees (including an annual fee, program activation fee, deposit fee, etc), therefore, they are bad credit cards to own. However, they are attractive options for people with bad credit because the requirements to get a secured credit card are very easy to meet.

As an alternative to getting a secured credit card, you should look at non-major credit cards. These types of credit cards include credit cards from various retail stores, department stores, and even gasoline cards. These cards usually have a high interest rate, however, the usually have no fees attached to them as secured credit cards do. Additionally, these “non-major” credit cards are unsecured, therefore, you do not have to put up a big deposit or tie the credit card to a bank account. It is easy to qualify for non-major credit cards, and thus, they provide an attractive alternative to secured credit cards.

Secured credit cards can help restore your bad credit, however, they come with a heavy cost. It might actually be cheaper to dispute negative information on your credit report. If some of the negative information gets removed, your credit score will increase, and therefore, you will have a better chance to qualify for an unsecured credit card.

The point is, if you have a choice, do not get a secured credit card. If you do not have a choice, make sure that you seriously consider whether or not obtaining a secured credit card is worth the potential credit score benefit.