Definition: Debit cards are similar to credit cards, except debit cards only allow you to spend money that you already have -- the money comes out of a checking account linked to the card. Debit cards do not increase your debt burden like credit cards do, although it is possible to borrow small amounts as part of an overdraft line of credit.
Where to Use Debit Cards
You can use debit cards very much like a plain old credit card. Many retailers will allow you to use a debit card at checkout just like a credit card. You just swipe it and you're done. However, sometimes you have to let the retailer know you're using a debit card instead of credit.
You can choose to have your purchase processed as a "debit" or "credit" transaction. To see which is best, read Should You Choose Debit or Credit?.
Although debit cards can be used almost anywhere, think before you swipe. That card goes directly to your checking account. If your card information is stolen, thieves can drain your account (which will make it difficult to pay expenses). You are somewhat protected against fraud, but avoiding trouble in the first place is much easier. Be especially careful using your debit card online.
Debit Cards and the ATM
For some people, the main reason to have a debit card is to use it at an ATM. For a while, banks issued "ATM Cards" which were only useful if you were standing in front of an ATM trying to take out cash. Eventually, banks started to add more features so that a debit card can now be used at almost any location.
Debit Cards and Bad Credit
For those with bad credit, debit cards are a very useful tool. You can function as if you had a credit card, meaning you don't have to carry cash around with you. However, because a debit card pulls against money in the bank, you can typically qualify for one if your credit has some blemishes. However, they don't help you build credit. If you can't open a bank account because of your credit (or if the bank refuses for any other reason) you can use a prepaid card instead of a traditional card.
Debit Cards and Kids
Debit cards can be a good tool for helping children understand how credit cards work. Most important lesson: debit cards have a limit that you have to manage. Credit cards also have limits, but they tend to be more flexible than debit card limits.
Prepaid Debit Cards
Traditionally, debit cards are part of your checking account; they allow you to spend money electronically instead of writing a check. However, newer prepaid cards allow you to pay with plastic (or by punching in your account number online) without the need for a checking account. Many cards can be used without any approval or credit check, and they help you avoid going into debt because you can only spend what you load onto the card.
Debit Card Rewards
Some debit cards are part of "rewards" programs. Using your card can lead to discounts or accumulating points (which can then be used for travel, gifts, and other goods). If you know how you'll use your debit card, and you know where you plan to spend money in the future, it may pay to pick a debit card that will save you money or help you enjoy perks. See How Debit Card Rewards Work for more details.
Also Known As: Check card. ATM Card. Gift cards act just like debit cards -- with a finite limit that gets depleted.
Examples: I paid with my debit card. Learn how to use a debit card.