The difference between a debit card and a credit card
Your first experiences with a credit card probably go something like this. You were at the store with your mom or dad buying food, clothes, or anything else. You or your parents pick stuff out, and you know that it’s not free. When you get to the counter, the cashier passes the items through a scanner and then the card emerges.
Your parent pulls out a plastic card and hands it to the cashier who swipes it through a slot. Then you take your stuff and leave.
I’m sure by now, you know it’s not magic and that these cards are backed up by money, but how exactly are they different?
Let’s say you are spending $200 on an mp3 player and you use your debit card. Your debit card is connected to your checking account. When you charge the card, the $200 is deducted from your bank account.
If you use your credit card instead, no money is deducted from your account. Instead, the credit card company lends you the $200 until you pay it back. You can continually charge anything onto the credit card company without affecting any of your accounts. You need to pay off the balance by the end of the month, or you are charged interest.
This is where debit cards beat credit. Let’s say you add $100 to your credit card every month, but at the end of the month you only pay $50. That means, the other $50 will continue to collect and earn interest, not for you but for the credit card company. You will always have to pay a minimum on the credit card and the less you pay off, the more it will cost you. This is how you get into credit card debt.
With a debit card, you are not borrowing money. If you spend more than you have in the account, your bank will charge you money, usually over $25. If you use a debit card, you are less likely to overspend.
Still, they is something about holding any type of plastic that makes it easier to overspend. If you know you have $500 in your account, you might not worry about spending $200 at once, but if you had it in cash, you would be more aware of it. With credit it’s even worse because your limit may be far beyond what you have in the bank.
Understanding the difference between a debit and credit card is critical. If you choose to use either, try to only use them when absolutely necessary. Be careful and mindful of your money!
