Today, you have many options when deciding how to best manage your finances: cash, credit, debit…or perhaps a combination thereof. While we talk a lot about the benefits and security associated with using debit cards to manage your day-to-day spending, we’re aware that debit isn’t the only plastic in town. Let’s explore some of the differences between debit and credit cards.
Let’s start with debit. Your debit card allows you to access the funds currently in your checking account. When you complete a transaction using a debit card, the funds to cover the purchase are debited from the available funds in your account. In this way, debit cards allow you to spend only the money you already have. This prevents you from accumulating debt through your everyday spending.
It’s important to note that there are different types of debit transactions. With PIN debit, merchants authenticate your transaction by having you enter your secret, four-digit PIN on the PIN pad. Signature debit works a little differently. When completing a purchase using signature debit, the merchant will ask you to provide a signature in order to authenticate the transaction. Whether you use PIN debit or signature debit, the funds are still debited from your checking account.
This is different from when you use a credit card. Credit cards allow you to access borrowed funds from a previously approved line of credit. When you pay for a purchase using a credit card, you use part of the approved line of credit to complete the transaction. Then, you’ll pay back that amount either in full at the end of the month or through a series of monthly payments.
When used responsibly, credit cards can strengthen your credit score, which can assist you with securing future loans for things like new vehicles or mortgages.
And keep in mind, you can strike a nice balance by managing your finances using both debit and credit. Debit cards are great for frequent, smaller purchases. Use them to grab your morning coffee or to pay for next weekend’s concert tickets. This allows you to save your line of credit for larger purchases, like an unexpected vehicle repair or medical bill.
If you have any additional questions, please feel free to contact us.