I suspect that there are many people like me who know they have an option to use a credit card, but don't take advantage of it because they have a lack of knowledge or interest, or simply are in the habit of paying for everything with a debit card because it 'feels safer!'

Many people (the old me included I may add!) fail to see much difference between a credit card and a debit card. So the questions are, is there a significant difference and is one better than the other? For me personally I really only started asking myself this question at the very start of 2008 - January 2nd to be precise - the date which I commenced with Myvesta UK. Up until then I hadn't given it a second thought.

Now with this question burning in the forefront of my mind I decided to remedy my ignorance and immediately set myself the task of attempting to find some answers because Steve at Myvesta kept telling me a debit card was less safe and I thought that couldn't possible be true.

So what's the difference you ask?

Debit Cards and How They Work

Debit cards are also known as plastic cheque, because they essentially do what the old-fashioned paper cheques used to do. When you swipe your debit card at the till point of for example a supermarket, the amount is automatically deducted from your current account as if you had written out a cheque for that amount. You punch in your PIN number as if you were using a credit card. The PIN is supposed to give you greater security.

Debit Card Risks

The risks involved are the same as with a chequebook. You must be sure to have enough money in your current account at all times to cover your purchases, or you may risk overdrawing. Some banks offer overdraft protection, but most will charge a hefty fee for spending more than you have. Although there is usually a day or two from the time you swipe your card until the time the transaction processes, its generally very unwise to spend more than you have in your bank account. If you enter your PIN when you use your debit card, don't count on their being any delay.

Debit Card Fees
Occasionally, a business will charge you a £1.50 fee for using your PIN, especially at ATMs. While this may seem like a small amount, it can add up. If you make four withdrawals a day thatís £6 you are just giving away. If you are going to use an ATM that charges, take out more at once so you don't have to keep paying the fee.

Credit Cards and How They Work

Credit cards have become part of everyday life since their introduction to the UK some forty years ago. When you use a credit card you're using borrowed money which you agree to pay back. This money is being borrowed from the issuer of the credit card which is usually a banking institution. In addition you will also pay interest on the money loaned to you at the rate which you agreed to when you applied for their credit card. This is known as the APR (or annual percentage rate). At the end of the billing period (usually a month) your credit card will send you a balance of how much you owe and how much you need to pay off immediately.

Credit Card Risks

The downfall of credit cards is that you can often end up paying much more than what you spend. Unless you pay off your entire balance each month, your debts will accrue interest, meaning it ís actually possible for your debt to grow- even though you are making the minimum payments.

Missing a payment, having too much debt, or worse, defaulting can have what feels like a lifelong effects on your credit as well. That is to say that when you are looking to make a large purchase for example a car, a home, the lender will look at your credit score before deciding how much to give you (if any) and on what terms.

The biggest risk of credit cards is getting stuck in a cycle of debt. Keeping a balance leads to interest, which leads to a larger balance which in turn leads to more interest. Therefore, its of utmost importance to keep your debts in check before they spiral out of control.

Credit Card Fees and Rewards

Credit cards were the first to offer point-based reward systems. Depending on how much you spend and where you spend, you can accumulate points that can be traded in for cash, gift certificates or air miles. Those points are really more of a marketing gimmick and not really worth much at all. Most points go unused and wasted.
The fees involved with credit cards can be quite confusing. For example, for using the deceptively convenient cash advance , you can end up paying increased interest until your total card balance is completely paid off, a much longer amount of time than if you had just swiped your credit card at the till.

A third option is a prepaid card which is an easy and far safer way to manage your money making sure that you are the one who is always in the drivers seat!
The card looks like a credit or debit card but is prepaid and you are able to add additional funds without charge. You will be free from the worry of late payment fees or overspending but unlike a debit card you can use it for on line purchases. You will have all the protection of a credit card and should your details fall into the wrong hands the damage to your account will be limited.

Sign up to this card is easy and hassle free. As you do not need a bank account a credit check will not have to be carried out so you do not need to worry about poor credit history. You can use it to pay for whatever you want like groceries, petrol or holidays and as mentioned previously online shopping.

So to Sum Up.

Deciding to use a credit card, debit card or prepaid card is hardly ever a matter of one or the other. Different situations call for different cards but We will cover this in my next article. However you do need credit cards to build up your credit rating otherwise you have nothing to be scored on as you need on going unsecured credit. A debit card does not build up your credit rating.

Helen says "Always remember this golden rule of spending: Think twice before buy something you either canít afford or don't really need. Its so much better for your credit rating, your bank account and your mental health to live in the black instead of the red"

So if you want to check and see if you've got the best credit card in your pocket and you live in the United States, visit this link to make sure. I'd suggest that you run through the free card finder report to easily verify if the card you've got is the best for you.

If you live in the U.K. and want to protect yourself from the nearly unlimited access into your bank account when using a debit card, consider a prepaid card instead.