So, you know what a debit card is and you know what a credit card is. The next question is “Should I get a Credit card”. Good question. Here are some things to think about to help you answer this question.
- First, know that the “Credit Card Act of 2009” prohibits issuers from giving cards to people under 21 unless they have proof of income (meaning you have a job!) or a co-signer (like a parent or guardian) – someone willing to put their credit on the line to help the applicant build theirs. And even if they do issue you a credit card, the interest rate will be high (e.g. 20%) and the limit will be low (e.g. $300).
- There are only a few benefits to using a credit card instead of a debit card. They are:
- Some hotels and car rental companies will not allow you to book using a debit card. They require a credit card to hold your room or vehicle.
- Credit cards offer “reward” programs, where you earn “points” whenever you spend money. These points can then be used to book airline flights or buy things. Note that if you don’t pay your credit card bill in full every month then the rewards programs are not worth it. You are paying more in interest than you are getting back in rewards.
- Using a credit card (and paying on time) builds your credit history. This helps you take loans out for cars and homes in the future. Using a debit card does NOT impact your credit history.
- Using a credit card offers better fraud protections – marginally. The key difference: With a credit card, the card issuer must fight to get its money back. With a debit card, you must fight to get your money back. It’s important to note that if your debit card is not physically lost or stolen, you have 60 days to report fraudulent transactions with zero liability.
- Good articles to read on Credit Cards:
What’s the Best Way To Pay?
So you’re paying for something at a store that takes cash, checks and debit/credit cards. Which one should you use? Looking to Europe, many countries there are almost 100% cashless and check free, and the US has been moving in that direction for years. Some things to think about to help you make a decision about what method to use.
- Read: https://www.investopedia.com/articles/pf/08/pay-in-cash.asp
- Read: https://www.moneyunder30.com/cash-vs-credit-vs-debit-which-should-you-use
- If you do carry cash, save it for those stores that only take cash.
- For some stores or vendors, paying cash will allow you to negotiate for a lower price. The vendor does not pay any debit/credit card fees, and has the certainty of getting the money now, vs later.
- Using a debit card allows your online budgeting tool (e.g. Mint) to easily track it and categorize it for you. Using cash or a check means you have to do that work yourself.
- Using a debit card means you can only spend what’s in your checking account. Using a check means the check may bounce at a later date if you don’t pay attention to your checking accounts balance.