“Should I use a debit card or a credit card, and what is the difference?”
When you slide your card through the scanner, the cashier asks, “Is that debit or credit?” Maybe you should ask yourself why you chose the payment option you did and how it could affect your finances.
A debit card is tied to your bank account, so when you use your debit card you are spending the money in your bank account as if you are writing a check or paying cash. The funds spent using a debit card are taken from your bank account almost immediately, so you need to be sure you have the money in your account before making purchases. Debit cards are convenient and are a great way to use your own money without incurring debt. If you don’t need to build credit history, debit cards can help you stay on budget. Always track your debit card purchases in your checkbook ledger to avoid overdraft fees. It is important to keep in mind that a debit card has limited fraud protection so you should know where your card is at all times and check your receipts against your bank statements.
If you use a credit card, you are using a credit company’s money to make your purchases. In other words, the funds are on loan to you and you will have to pay them back usually with interest. Credit cards are helpful in building credit, and a good credit history will benefit you in many ways. With a credit card, you also have the advantage of consumer fraud protection. Consumer fraud protection is especially important when you are traveling. The flip side is that credit cards can be dangerous to your financial health if you don’t use them wisely and let your debt get out of hand.
So it boils down to:
1. Whose money are you using (yours or theirs)?
2. Are you trying to build your credit history?
3. Do you need consumer protection for travel?
4. Will you be able to pay off your purchases when the credit card bill = arrives?
Jill Russo Foster is the author of Cash, Credit, and Your Finances: The Teen Years. She provides practical tips for every day finances. Learn more about protecting your credit and living within your means, with Jill’s popular free reports and bi-monthly ezine, available here ==> CashCreditandYourFinances.com
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