Struggling to pay your credit card debts? You might want to consider
a debit card instead.
Debit cards may look like credit cards, allowing you the convenience to pay for goods and services in person, without cash. However, they are very different, having their own set of advantages and disadvantages regarding their use.
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So, how do they work?
A debit card is a plastic card designed to withdraw or use funds directly from a customer's linked bank account. Debit cards can be used at automatic teller machines (ATMs) to withdraw the available funds as cash. Alternatively, you can use your debit card to pay directly for goods or services purchased, in place of cash. Some retailers also offer consumers the ability to withdraw cash without making an initial purchase, although many require a purchase to be made before they will allow a cash withdrawal to be made.
There are two main types of debit card:
These cards allow purchases or withdrawals to be made by transferring funds from your account almost immediately. A personal identification number (PIN) is issued with the card, meaning that the debit card cannot be used by anyone who doesn't know the PIN.
- Signature-based (deferred) debit cards
These cards work in a similar way to credit cards, in which a signature is required when a purchase is made. Funds are transferred from your account two or three days later. These are different to credit cards because they still require you to have the funds available in your account when the transfer is made, whereas credit cards allow you to borrow someone else's funds and then pay them back. Signature-based debit cards have a VISA or MasterCard logo on them.
Debit cards offer you a convenient and more secure form of accessing your own money without having to carry it around with you. The requirement of a PIN or signature before your money can be used means unauthorised access is limited. However many people make the mistake of recording their PIN and storing it close to their debit card making it easy for thieves to access their account. If possible, try to memorise your PIN and if you really need to write it down, make sure it is well disguised, preferably in a different place to your debit card.
Although VISA or MasterCard debit cards are accepted everywhere the logo is displayed around the world, PIN-based debit cards are only accepted for purchases or withdrawals within the country of issue, limiting their use for overseas travel.
Additional advantages of the VISA or MasterCard debit card include the ability to make payments:
- by telephone; and
- over the internet.
You can also make cash withdrawals from any bank displaying the VISA or MasterCard symbol.
Deferred debit cards are particularly useful for people who cannot get approval for a credit card, such as the unemployed, students and those who are under-age. It can also be good if you do not wish to get into debt by using a credit card, or for those with a bad credit rating, but you still want the convenience and accessibility of outlets around the world displaying the VISA or MasterCard symbol.