What is the difference between a credit card and a debit card? If you are using your credit card intentionally, then they are very similar, except a debit card doesn’t protect you against fraud, give you rewards, or build credit. This post will highlight the differences between credit cards and debit cards to help you decide which is best for you.
How Credit Cards Work
Let’s first go over how credit cards work. Like a debit card, you use your credit card to make a purchase. Then every purchase for the month appears on your statement, just like your debit card does. The difference is when you pay for the purchases. With a debit card, it comes out of your account at the time of purchase. With a credit card, you must pay it off each month.
Credit cards only cost you when you don’t completely pay off your bill at the end of the month. Then you will pay interest on whatever you didn’t pay off. Usually credit cards have high interest rates, so you want to completely pay off your balance each month.
Every month your credit card will tell you the minimum payment due. If you pay off the full statement balance instead every month, you won’t “pay” to use the credit card. You do not pay any interest as long as you pay off the full balance each month.
The key is keeping the same debit card mindset by NEVER spending more than you have available in your checking account to pay back.
Your spending limit is NOT whatever the credit card said you could spend each month. It’s the amount available in your checking account.
Benefits of Credit Cards
Fraud Protection
What happens if someone gets a hold of your debit card?
In most cases they have direct access to however much money you have in your checking account.
Will you get your money back if someone makes unauthorized purchases with your debit card?
This varies based on the bank so you should check your bank’s fraud policy. Often you are responsible for monitoring and catching any fraud on your accounts. You also have to report it within so many days.
Conversely, most credit cards offer fraud protection. They will also monitor and flag any unusual spending patterns and resolve the unauthorized charges for you.
Rewards
You are going to be spending the money regardless of your payment method, so why not earn some rewards? My personal favorite reward is cash back but there are many types including travel points and more.
My favorite card, especially as a college student, is Discover. When I opened the card I got a $50 bonus because someone referred me. They also offer a $20 bonus every year to eligible college students for good grades (GPA > 3.0). When I was researching different cards, I ultimately chose Discover because they had the best rewards program for college students.
If you decide to open a Discover credit card, you can use my referral link to get $100 cashback after your first purchase with the card. If you use my link to get the $100 bonus, I will also get a $100 bonus, at no cost to you.
If you are interested, please provide your email so Discover can send you a unique referral link. To get the $100 cashback bonus, you must apply for the card using the referral link. Exclusions apply, see Discover’s email for full details.Additionally they offer cash back for every purchase you make. For every purchase I make, I get 1-5% cash back that I can redeem immediately. For example, let’s say I spent $100 this month. Now I’m going to pay it off at the end of the month. I earned 5% rewards, which would be $5 cash back. Instead of paying $100, I can apply my rewards and only pay $95.
Unlike other rewards cards, this Discover card doesn’t have any fees and there’s no limit to how much cash back they will match.
Building Credit
Finally, if you use a credit card responsibly, it builds your credit. This is important because your credit score is used to evaluate your interest rates on loans or your eligibility to rent housing. A high credit score shows you can be trusted to pay what you owe. This can help you get better interest rates, which will be important if you need a loan to purchase anything in the future like a vehicle.
Next Steps
If you want rewards for your purchases, protection against fraud, and a stronger credit score, then you should consider a credit card. If you know you can and will pay off the full credit card balance every month, then you could take advantage of the benefits of a credit card.
If you are still unsure if a credit card is right for you, message me and we can discuss it!
