Funding and Interest

• A credit card allows you to borrow to pay for goods and services. If you fully clear your statement balance by the payment due date, you incur no interest. During this short-term, interest-free borrowing period, your cash can earn interest in the bank. However, fail to clear the full balance by the due date, and not only will your lender charge interest, you may find that your debt begins to escalate. You also incur a fee if your payment is late. When you use a debit card, the funds come direct from your checking account. Unless you have opted into an overdraft arrangement, there is no borrowing involved. If you have opted into an overdraft arrangement and take advantage of this, you pay interest on the amount overdrawn.
  
  

Consumer Protection

• Federal law limits your loss to $50 if your credit card is lost or stolen. Additionally, the law protects credit card users who pay for goods or services that fail to arrive or are unsatisfactory. You may be able to withhold payment of the amount in dispute while your card provider resolves matters with the merchant. Federal law does not give the same protection to debit card users. If there is unauthorized activity on your debit card and you report the matter within two business days, your loss is restricted to $50. Fail to report the matter within two days and you could lose up to $500, as of 2011. Fail to report within 60 days and you face unlimited loss. Under federal law, your debit card provider has no obligation to assist if you have used your card to pay for faulty or non-delivered items. Many debit and credit cards provide consumer protection benefits that exceed these statutory obligations -- but check precise terms, as conditions and limitations may apply.
  
  

Other Features

• Both credit and debit cards providers are able to charge annual and other fees. Overdraft and over-the-limit fees are not permitted unless you have opted in to the arrangement. Credit card late payment fees are restricted $25, or $35, as of 2011, if you have also failed to make one of your last six payments on time, and cannot exceed your minimum payment amount. Check the terms of your card for likely fees; if applying for a new card, check terms on the Bankrate.com website, using the search facility. Both credit and debit cards offer rewards but the market is constantly changing. In 2011, many card providers are reviewing their reward packages as new rules restrict their ability to charge certain fees. Choose a card with rewards that fit your lifestyle and spending patterns -- but do not be tempted to overspend simply to gain rewards.
  
  

Considerations

• Unlike debit cards, credit cards can help build your FICO, Fair Isaac Corporation, credit score. Credit card providers cannot charge you for amounts in dispute while the matter is under review. A disputed debit card payment has already left your checking account, potentially leaving you short of funds while the bank investigates. For these reasons, customers often choose credit cards to pay for major items, taking advantage of the interest-free grace period by clearing the balance on the due date. For smaller, more routine payments, many avoid borrowing and opt for the ease of real time cash management offered by debit cards.