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February 3,2009

  • Credit or Debit; What's the difference?, Pt.3
      Risk management.



    • Large purchases: Definitely credit cards. Spending large sums at one time using debit cards is a little like sending cash in the mail. If something goes wrong, "oh well..."
    • Theft: Credit cards offer great advantages here. With credit cards there is only a $50 liability for unauthorized charges'. With debit cards, the liability is, at least $500 and can quickly drain a person's bank account leaving no cash to survive.
    • Late Payments: Debit cards prevail, here. They only have this problem with people who live a lifestyle where they're racing to the bank every payday to beat the outstanding charges that could arrive any minute. Hopefully, we don't have any people like that. With credit cards, late payments can become very serious.
    • Mis-use: Mis-use applies here as a comparison between debit and credit cards. In order to compare apples to apples', we must assume that the balance is paid in full in both cases. That means no finance charges. In this, the risks are about equal. However, the convenience of paying more on a purchase than you have in the bank does increase credit card risk.
    • Money-Markets: Money-markets carry their own risks but not because of debit cards. The accounts afford the advantage of possible high yields (or losses) with the cash just setting there. The beauty here is that this unused reservoir of money is earning interest all the time it's waiting to be spent. The checking and savings accounts, meanwhile, are kept safe from being drained if something goes wrong with a card transaction (provided the card isn't linked to them). Credit cards, on the other hand, can take large amounts of interest away from you in the form of finance charges if you leave a debt balance over a billing cycle.

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