Credit Cards vs. Debit Cards

What’s the difference between a debit card and a credit card? Many people just starting out in finance really don’t know the answer. In fact, a lot of adults who’ve been doing financial things for years can’t even tell you the answer.

Well, it’s really simple. A debit card allows you to withdraw money instantly from your bank account at a point-of-sale or at an ATM. This is always money that you already own. This is money is being transferred directly out of your bank account and to the merchant or whoever you are ordering from. Because of this when you use a debit card you’re not risking getting yourself into debt for the most part as long as you do not go below the balance on your bank account. To make sure that you do not go over the balance on your bank account when using your debit card, you want to make sure that you tell your bank that you do not want to be signed up for the overdraft protection program. Banks use these programs rip off their customers by charging them $30 or even $40 every single time they go even a penny over the balance on their bank account. You don’t want to get suckered into that, so make sure you tell your bank and not to sign you up for this “overdraft protection”.

Additionally, when you overdraw your bank account, if you do not repay whatever you overdrafted in a very timely manner, the banks will report you to a “credit reporting agency” destroying your credit in the process. If you wait too long before repaying the bank, it will be nearly impossible to repair the damage to your credit, and it will take a whopping five years before you’ll be able to open another bank account at any bank, anywhere. This can be devastating to anyone, and especially for young people and people who are not experienced financially.

On the other hand, credit cards give you access to money that you do not own. When you use a credit card, you’re spending money that is not yours. Basically, what you’re doing is borrowing money from a corporation who will then charge of interest on that money when you have to pay it back. Banks and financial institutions love credit cards because they make more money than you’re actually spending. For example, that nice dress or pair of jeans you bought with your store card will actually cost you significantly more than it costs in cash. It may cost even 20 or 30% more by the time you actually pay it back to the credit card company. For this reason, the entire American financial system and that of most of the Western civilized world revolves around credit and credit cards. The banks just love it when you take your time paying off that credit card balance, because it allows them to charge you massive amounts of interest, racking up your debt and making them more and more money all the while satisfying their greed.

So now that we know the banks and the credit card companies are out to get us, how do we stay out of trouble? Well, it’s fairly simple actually! To stay out of trouble, just make sure you don’t spend money that you don’t have. In order to always make sure that you spend no more than the amount of money that’s actually in your bank account at the time being, it helps if you can keep a regularly updated checkbook detailing what money you spent, where you spent it, and what card you used. That way, you always know exactly how much money you have left, and you never spend more than you actually have. When you do this debit cards won’t rack of fees and credit cards rack up interest. This should help to get out of financial trouble.

We hope that our little guide here has been helpful to you and educational as well. We really hate it when people get into financial trouble, and if we can do anything to help you stay out of it, that would be just awesome. Good luck in your finances, and happy spending!

Title Post: Credit Cards vs. Debit Cards
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