Feature Image of Debit vs. Credit: Know Your Card

As you open for your very first cards, it’s important to know the difference between debit and credit. You’ve probably seen your parents reach for their trusty piece of plastic at Wegmans or Target, but is it a credit or a debit card? Should you have both? When should you use each one? We’ll dive into all of that here.

What’s a debit card?

The main difference between debit and credit cards is where the money comes from. Debit cards take money directly from your bank account. This can be good because you don’t payinterest on it and you don’t get a bill you have to pay later. However, if you spend more than you have in your account, you’ll be charged overdraft fees.

What’s a credit card?

Credit cards work quite differently. When you apply for one, you’re approved for a specific “line of credit,” which typically starts out relatively low for first time card holders. For instance, if you have a $500 “line of credit” that’s how much can be put on the card. You can only spend up to your line of credit before your card is maxed out. Each month, you’ll receive a bill that you’ll need to pay. While you’re only required to pay a minimum each month, we recommend paying in full each month so you can avoid interest and fees that can add up.

Credit cards help you establish credit history which will be important throughout your life. Using a credit card wisely increases your chances of having a good credit score which will be used by financial institutions to determine your future college, car, or even home buying loans.

Which card should I use when?

If you have both a credit card and a debit card, the decision of which card to use when may depend on the situation. If you’re just starting to build your credit, you may want to focus on using your credit card more often so you develop a strong credit score by consistently paying your bills on time. Remember, the goal is to pay off your credit card each month. Another advantage of choosing to pay by credit is receiving credit card rewards, which vary based on the credit card you’ve selected. However, you may want to use your debit card more often instead to avoid getting yourself into financial trouble. Further, some debit cards also offer rewards so consider all factors when deciding how to pay.

The bottom line is, if you’re concerned about your ability to pay off a credit card from month to month, sticking with debit may be best. Whichever option you choose, understanding how you’re spending your money is the first step towards financial maturity.

Categories: Budgeting