When starting out on your financial path, you may wonder about the differences between debit and credit cards as both may be provided by Master Card, Visa, or American Express and let you charge purchases. But there are key differences and each may have a place in your financial took kit.
Credit cards have several advantages:
- You can get 1-5% cash back or reward points for purchases depending upon the card.
- You can coordinate one payment for all card purchases during a convenient time of month.
- Cards may offer perks such as free rental car insurance, road side assistance, or extended warranties.
- Credit cards help build your credit history so you can qualify for other loans such as auto loans or mortgages.
- You can easily borrow money for purchases, ideally for emergencies like car repairs or replacing appliances. Then can help when your emergency fund is low.
Of course the last advantage can also be their biggest disadvantage; it’s too easy to borrow money and go into debt while paying among the highest interest rates of any type of borrowing. If that happens, always pay MORE than the minimum payment amount to quickly pay off the debt and keep the amount of money going to pay interest on stuff you already bought to a minimum.
There are two types of debit cards. You probably got one when you opened your checking account and can use it to withdraw cash from an ATM or to pay for purchases. When paying for purchases, the money comes promptly out of your checking account. The news is full of horror stories about people getting socked with high fees for insufficient funds in your checking account, even for cups of coffee and such. So ensure you use your bank app to ensure you have funds before using your checking account debit card.
You can also get pre-paid debit cards from a wide variety of financial services companies and even Walmart. These let you spend only what you have preloaded onto the card. I highly recommend one of these for teens or anyone who wants help sticking to a budget. Even both spouses in a marriage can have pre-paid debit cards for their fun money to ensure they stay within the family budget. As always when dealing with banks, watch the fees, know when fees are charged, and shop around for the best pre-paid card for your situation.