When should I use my credit card vs. debit card?

Many people are fear of using credit cards because of the risk of overdrafting, high interest rate and fraud. Some of these worries are not necessary. Nevertheless, when we need to swipe our cards, we should choose between credit card and debit card wisely depending on the situation.

Best situations to use credit cards:

  1. Shopping online: Credit cards are highly recommended if you are shopping online. Purchasing by debit card is just like paying cash. It is hard to get your money back once someone else makes a purchase by your debit card online. However, if you purchase by credit card, it is NOT like paying cash. Many credit card companies offer “zero liability” policies, which means that if you dispute a transaction within a few days that wasn’t authorized by yourself, you needn’t pay for it.
  2. Making large purchases: The credit liability policy also works pretty well for large purchases. In addition, some credit card companies offer warranty policies that go beyond the manufacturer.
  3. Making reservations, buying tickets: Many companies only accept credit card online reservations because of safety concerns. Also, it is possible to get discounts or cash-back when you use a credit card to make reservations.

Situations to use debit cards:

  1. Purchasing a small amount of goods: Debit payment is similar to cash payment, so it is more convenient to use a debit card to make routine purchases than a credit card.
  2. Automated payments: some types of payments can made automatically by using a debit card, which can make your life more convenient.

It is still risky to use a credit card without carefully planning. Nevertheless, using credit cards has a lot of advantages that debit cards do not have.

Written by Bowen Song, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

What are some ways to reduce spending in college?

The first way to reduce expenses is to avoid making impulse purchases when shopping. People can be subject to impulse buying when they are upset, feel pressure from their peers, or even when an item is on sale. Before making a purchase, ask yourself if the item is something you need, if it will last for a significant amount of time, and if this item will off set your financial goals or budget. If the answer to these questions is anything that will make the item not worth purchasing, then don’t.

Another tip to help reduce spending is to keep track of your expenses with an app on your phone. Often times, mainly in college, we are too busy to write down a list of everything we have spent and this can make it very hard to manage our money. An app can make it very easy to track income and expenses to make sure you are living within your means. If you see that you are reaching your spending limit for the week or month, re-evaluate your budget to fit your needs.

The last spending tip is to take advantage of what your college campus has to offer. Instead of going out to bars and spending an excessive amount of money, spend time with friends in an apartment or dorm. Go to your campus gym instead of paying for a membership at a gym in town. Many stores and restaurants offer student discounts, so make sure to take advantage of your status as a student in regards to saving money. A great tool to reference that offers even more saving tips is the 55 Ways to Save Money handout that can be found by clicking on this link! http://web.extension.illinois.edu/cfiv/fwcollege/5402.html

Written by Jessica Rosenberg, Financial Wellness for College Students Peer Educator, University of Illinois Extension, 2017.

Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

Credit Cards vs. Debit Cards: What are the pros and cons of a credit card and debit card? What are the differences between them?

A credit card is a small plastic card issued by a bank, credit union, or other financial company which allows you to purchase goods or services on credit. The financial company usually establishes a credit limit that has the potential to increase or decrease depending on your spending habits and if you make payments on time. On a positive side, credit cards have a few advantages. In general, a credit card can be looked at as a 30-day, interest-free loan, as long as your monthly bills are paid off in full. Your credit card will allow you to begin to establish a credit history.

On the other hand, credit cards usually have high interest rates that will go into effect if you don’t pay a bill on time or don’t pay a bill at all. The interest amount accumulates over time, depending on how long it takes you to pay off the debt. Credit cards also are very vulnerable to fraud. It is important to monitor your purchase history, usually through a monthly paper or electronic statement. Monitoring helps you notice fraudulent activity. Lastly, if payments aren’t submitted on time, your credit history will be negatively affected, hurting your chances for future loans and other financial options to be issued to you.

A debit card is also a small plastic card that allows the holder to purchase goods and services, but it is usually issued by a bank or credit union. These cards are usually linked to a savings or checking account, where you will deposit funds for usage on the card.

Debit cards have several advantages that may be appealing to you! When you use a debit card, you are only allowed to spend the amount of cash that is available in your checking or savings account. (If have overdraft protection and you spend more, there may be immediate fees.) With this in mind, there is usually no need to carry cash as this is an equivalent. There are no interest rates ever associated with debit cards, due to the fact that you are spending your own money as opposed to taking a loan out with credit cards. Debit cards also have no effect on your credit history as there is no credit being used. Taking this into account, anyone who has a checking or savings account is able to sign up for a debit card, making it a viable option to consumers.

On the other hand, debit cards come with possible overdraft fees, which are put into effect if you spend more than what is in your checking or savings account associated with your debit card. If you choose a debit card, you are also required to remember a PIN number to make any transactions with the card. This PIN number must be kept confidential at all times!

Surely, several differences exist between credit and debit cards. If you have a credit card, monthly bills can be accessed electronically, or you can choose to have them mailed to you. On the other hand, debit cards have no monthly statements, which means you must keep track of your own expenses via your checking or savings account. For credit cards, there is a liability limit of $50. More often than not, you are not held liable for fraudulent activity. Furthermore, there is a lot less fraud protection with debit cards. There is a liability limit of up to $50 if you report in within two days of noticing the fraud. But your liability increases to more — or even everything in your account — depending on how quickly the fraudulent activity is reported.

 

Written by Joey Gangichiodo, Financial Wellness Peer Educator, December 2014. Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.