Personal Finance ? The Top Three Disadvantages in Using Debit ...

A lot of people have problems with their credit scores ? that is a well-known fact. Thus, some of them have resorted to using the alternative to credit cards ? the debit card. Basically, a debit card is like a savings account that you can use as a charge card, with the costs of purchases deducted on your savings account?s outstanding balance.

While there are many advantages that one can get via the use of the debit card, this financial instrument also poses at least three considerable disadvantages, and those are what we will be talking about.

First, debit cards do not directly help build up one?s credit history. It is true that using a debit card can allow a person to avoid sinking further into debt. However, using a debit card does not actively improve one?s credit score. Your credit score is the indicator of how likely you will pay a loan. Since no debt is incurred with the use of a debit card (and hence no need for repayments), then it says nothing about your trustworthiness as far as repaying debt.

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Second, debit cards work only when it has an outstanding balance. This means that you can only spend as much as you have deposited into the account prior to the purchase/s. This will not be much of a problem if you use your card for small transactions like paying for the utility bills or buying lunch. However, the difference becomes noticeable when you decide to pay for larger purchases that are hard to pay for in just one sitting. A new audio system, new roofing for the house, a high-end laptop pc ? these are just some of the examples of stuff that one can get often only through credit card installment plans.

Third, debits cards are sometimes rejected by some merchants. While debit cards have the same 16-digit Visa or MasterCard number, security code, expiration date etc., they are given a special code within the card number that distinguishes them from regular credit cards. Unfortunately, some merchants automatically reject debit cards in their point-of-sale systems. This would not have been much of an issue, except that some of those merchants are airline companies and travel agencies. During emergencies, declined debit cards in these point-of-sale sites can be one heck of a headache.

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Source: http://www.finanzweb.org/personal-finance-the-top-three-disadvantages-in-using-debit-cards-instead-of-credit-cards.htm

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