College Student? Debit Card vs Credit Card

Debit Card vs Credit Card
Whether you are just starting your college career or have been a college student for some time now, it is never a bad time to increase your financial literacy. Once you turn 18, you will be eligible to apply for and receive credit cards, and many credit card companies market heavily toward this crowd. Therefore, it is important to understand the difference between a debit card and a credit card and the role they play in shaping your finances.

What’s a Debit Card?
Like a credit card, a debit card is a small piece of plastic that can be used online and in stores to make purchases. Also like a credit card, you swipe or insert it into a payment terminal to pay for your groceries, gas or whatever else you may be buying. Unlike a credit card, a debit card is linked to your checking account, which you cannot overdraw. Therefore, buying goods with such a card is like using your checkbook without having to write an actual check.

What’s a Credit Card?
A credit card is not linked to any type of checking or savings account that you may have. It is actually a loan that offers you a limited amount of revolving credit. You will be asked to make a minimum payment each month that you have a balance that consists of your principal payment as well as interest. The amount of interest that you pay depends on your balance and the interest rate on the card. Credit cards are typically unsecured loans, but they may be secured by collateral to ensure a lower interest rate. Secured cards may also be available for those with no prior credit history or who have extremely poor credit.

When to Use a Debit Card
It is always preferable to pay in cash if you have the funds to do so. Therefore, you should aim to buy food, buy gas and make other small purchases with cash that you already have — and a debit card is like paying with cash since it uses money you already have in an account. Doing so eliminates the need to pay 20 percent interest for six months to pay off a slice of pizza or that new video game that you wanted to buy the night it came out.

When to Use a Credit Card
A credit card can be a useful tool for times when you need to make a large or emergency purchase. For instance, if your car breaks down and you need to pay for repairs, you can do so with your credit card. Another instance where using a credit card may be appropriate is when you buy books or pay for your college tuition. This enables you to make larger purchases immediately and pay them off over time as you get paid or can find other sources of income.

Credit Cards Are Not Free Money
Debit cards may be preferable to credit cards because you cannot spend more than you actually have in your checking account. This means that you won’t be able to make a purchase before you earn the money to pay for it, which could stop you from racking up a large debt that you cannot afford to repay. If you want a credit card to build a positive history, keep the balance as low as possible to ensure that the monthly payments don’t harm your credit now or in the future. Remember, you can build your credit score by making payments on auto or student loans as well.

Knowing the difference between a credit card and a debit card will allow you to make smart choices when making a purchase. Using your credit card only when absolutely necessary will enable you to maintain your finances while in school. When you graduate, you will thank yourself when you are able to make your student loan payments because you are not also burdened by a credit card payment.

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