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Debit Cards Versus Credit Cards: What’s the Difference?

By U.S. News & World Report

While choosing to swipe your debit card or credit card may seem arbitrary, there are significant differences in how they work, their benefits and their potential drawbacks. Knowing what happens “under the hood” when you make a purchase can help you save money and lead to better financial habits.

Here’s what to know about how credit cards and debit cards differ — and which one to use when making a purchase.

[See: 8 Ways to Maximize Your Credit Card Rewards.]

Debit cards. Issued by your bank, a debit card draws directly from your checking account. It allows you to withdraw cash from ATMs and at point of sale (for example, getting $20 back when you pay at the grocery store). Like when you withdraw from an ATM, when you make a debit card transaction, the money is pulled instantly from your checking account.

Using a debit card can help you limit spending and stay on a budget. Purchases are capped by the amount of money in your account, keeping you from spending money you don’t have (assuming you haven’t opted into overdraft protection), building debt and paying interest fees. Using a debit card will not build your credit history.

Because debit cards draw directly from your bank account, if your card gets stolen or lost, you will be out the full amount of any fraudulent charges until the matter is resolved, and reimbursements can take weeks. The Electronic Fund Transfer Act, or EFTA, covers fraud protections for debit cards. If you catch the fraudulent charge within two business days, you will be responsible for up to $50 of the total amount. If you catch it within 60 days, you will be responsible for up to $500 of the fraudulent charges. After that, you won’t be able to get any of the fraudulent charges reimbursed.

Using debit as credit. If your debit card is a Visa or Mastercard, you can use it like a credit card. At the register, instead of typing your pin, you’ll sign to complete the transaction. Unlike when you use debit, when you choose credit, the purchase amount isn’t drawn from your account immediately. It can be a few days before the issuer processes the purchase and withdraws the money from your account. Also, using debit as credit doesn’t help you build credit.

One benefit of using debit as credit is that you will have better protections if you have fraudulent charges, with some bank cards offering $0 liability guarantees and next-day reimbursements. Not all banks offer the same coverage, so you’ll have to check your account agreement to see what is covered.

Credit cards. With brands such as American Express, Visa, Mastercard and Discover, credit cards allow you to draw against a predetermined line of credit. You will have around 30 days to pay off all charges made each statement period. If you are unable to pay off the full amount, you can pay a smaller minimum amount on your due date, but you will pay interest on the unpaid balance until you pay it off.

Credit cards offer consumers the chance to earn rewards on purchases, such as cash back or miles, and paying your credit card bills on time helps build your credit history. Credit cards can also offer benefits such as purchase protections, extended warranties and price protections.

Unlike debit cards, credit cards pull from your credit line, so the money in your bank is safe from any fraudulent charges or while waiting for reimbursements. The Fair Credit Billing Act, or FCBA, covers fraud protections for credit cards. Protections for fraudulent charges on credit cards are stronger than for debit cards, with the law limiting your responsibility to $50. Many credit card companies offer $0 liability protections for fraudulent and unauthorized charges.

Because credit card purchases are not limited to your available funds, you can buy something you may not be able to afford at the time. This can lead to overspending, credit card debt and interest fees. Another drawback is that late bill payments can negatively impact your credit rating.

[See: 12 Simple Ways to Raise Your Credit Score.]

Debit or credit? Debit offers the flexibility of withdrawing cash and can help keep your spending within your available funds. But debit cards don’t offer the protections and benefits of credit cards, even when used as debit for credit. Credit cards offer stronger fraud protections and rewards, but require better budgeting to avoid overspending, building debt or hurting your credit score. Knowing when to use debit or credit will depend on your personal spending habits. Check with your bank and credit card issuer to see what protections they offer.

More from U.S. News

10 Completely Careless Credit Card Mistakes You’re Making

What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments

Basic Money Lessons You (Probably) Missed in High School

Debit Cards Versus Credit Cards: What’s the Difference? originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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