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Credit Cards vs. Debit Cards

Youth Tips & Activities

As you grow older, being able to manage finances becomes more important—and more complicated. Take credit and debit cards, for example. Both cards are commonly used for transactions, but they work in very different ways. Let’s break it down:  Credit cards vs credit cards

Debit card   

A debit card is linked directly to a bank account. When you make a purchase using a debit card, the funds are immediately deducted from the account. It’s like paying with cash, but in a more convenient and secure way. A debit card is a great tool for managing your day-to-day expenses and accessing money from ATMs 

Pros of debit cards:  

  1. No borrowing: With a debit card, you can only spend the money you have in your account. This helps you avoid debt and overspending. 
  2. Convenient and secure: Debit cards are widely accepted, and transactions are protected by a personal identification number (PIN) or a signature. They can be used for both in-store and online purchases. 
  3. Easy access to cash: Debit cards let you withdraw money from ATMs, giving you instant access to cash when needed. 

Credit card 

When you use a credit card, on the other hand, you’re borrowing money from the card issuer (which can sometimes be a financial institution, like a bank, or sometimes a credit card network, like American Express) for making purchases. It functions like a short-term loan that you must repay later.  

Whenever you use a credit card, the amount you spend is added to your credit card balance. At the end of each billing cycle (between 28 and 31 days), you’ll receive a statement outlining your charges. You have the choice to pay the entire balance or a minimum or partial payment. If you don’t pay the entire balance, the remainder will carry forward to the next month and you’ll be charged interest will be charged on whatever you haven’t paid back. 

Pros of credit cards: 

  1. Building credit history: Using a credit card responsibly and making timely payments can help establish a positive credit history. This becomes valuable when you need to apply for a loan or an apartment rental.
  2. Rewards and perks: Many credit cards offer rewards, like cash back or airline miles
  3. Emergency protection: Credit cards also provide some peace of mind in the event of an emergency/when you don’t have enough money in your account to cover a charge.  

Important considerations: It’s crucial to use credit cards responsibly by paying off the balance in full each month (or as much of the balance as you can). Credit cards may also have annual fees, late payment fees, and interest charges, so be sure to read the small print and ask questions when you’re considering this option. 

Often, people choose to have a debit card and a credit card for different situations. There is no right or wrong answer when it comes to choosing one, the other, or both—it depends entirely on your personal situation. As with any other financial decision, be sure to compare your options carefully, and across multiple institutions to find the best fit for you.