Credit Card or Debit Card? Whats the Difference?

By: Elisha Burberry

Looking at debit and credit cards side-by-side it is hard to see any real, physical difference between the two. They are both plastic rectangles, embossed with a series of numbers, and are acceptable tender in most shops, restaurants and hotels in Britain, as well as around the world. It is likely that you were first given a debit card as a teenager; a credit card following later as a more 'adult' way of handling money.

However, debit cards offer access to money that you already have, whilst credit cards provide money that you need to pay back, usually a minimum amount every month, plus interest accrued. Debit cards are therefore restricted by the state of your current account; if you do not have the money you cannot purchase something unless you wish to incur overdraft interest charges, or even be penalised for going over your limit. In some ways, this is a 'traditional' way of managing money - put simply; you cannot spend what you do not have. In fact, many people from older generations find credit an often alien concept.

Today, this attitude may seem outdated and unnecessary. If you do not have ?1,000 in savings it does not necessarily mean that you can't afford a new music system. Perhaps you are confident that on your current salary you can set aside enough every month to pay off a credit card debt? In this way, a lump sum of expenditure can be afforded, if the context is extended - from what you can afford now, to what you can afford over a number of months. It is this principle that essentially underlies mortgages.

In order to finance a purchase you can use existing savings, take out debt in the form of a loan or credit card or perhaps use a mixture. If you don't already have one, to apply for a credit card or loan often means you may need to have an acceptable credit rating, even if there are hundreds of cards on offer. Even simple things like changing your address regularly can negatively affect your credit rating, while steering clear of credit in the past may not be a good thing either. Some bank managers advise using your credit card for the weekly shopping and paying the amount off immediately, as a good way of quickly boosting your credit scores.

However, while some companies may have stringent guidelines when it comes to credit card or loan applications, others may not be so fussy so if your application is turned down by a particular lender, it might be worthwhile approaching a different one whose criteria for acceptance may be different. Be careful not to apply for too much credit too quickly, though, as this can also have an undesirable effect on your credit applications.

Store cards are a form of credit cards, but they only allow you to buy from specific outlets. This may be fine if your music system is sold there, but the interest rate charged on these cards can be much higher that what you might find from a credit card. Setting aside the teasing discounts offered and considering the full picture is the sensible, if slightly dull thing to do.

Credit may be an effective and easy way of purchasing goods and services, but it does require effective financial management - and a fairly stable income. But then again, with the rise of such Internet sites as E-Bay, making a fast buck in times of need is no longer a such a pipe dream.

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