Both debit and credit cards are ways of spending money. No payment method is automatically better or worse than another, it depends on the situation.
They are similar in that they both:
- can live in your smartphone’s mobile wallet
- be tracked online or through an app
- help you spot unauthorized activity by reviewing your statement
- take responsibility to use
When and how you use each card can have an impact on your finances. Here’s how.
A debit card is linked directly to your checking account. This can also be called your debit account. It can be used as an ATM card, for online transactions, and point-of-purchase transactions (a.k.a. swiping to pay at the register). When you make a purchase with debit, that amount is withdrawn out of your checking account. It’s like spending cash. In fact, some stores even allow you to get cash back when you use your debit card with the PIN. The PIN, or personal identification number, is a four-digit secret code you either choose when first receiving your card or was sent to you.
Debit cards are great for everyday items such as food, gas, or your morning coffee. Before using it, make sure you have enough money in your checking account to cover the amount you spend. Helpful tip: use the QuickBalance feature of the MSGCU mobile app to check your account balance without having to log in. If you don’t have enough money in your account, don’t buy it. Debit cards do not get reported to the credit bureau so they don’t impact your credit score, however spending more than you have puts your account into the negative and you may incur a fee.
A credit card is like a personal loan. Every time you use it, you borrow money that you’re responsible for paying back in the future. Paying the full balance on your purchases in full each month avoids paying interest on them. Some choose to use credit for items they want to pay over multiple months, often big-ticket items like a new mattress or an appliance. Some cards or purchases could even earn you rewards or cash back.
Responsible credit card use builds credit, which will help you with other future needs, like when you need to apply for a loan or even a mortgage.
When using a credit card, the purchase amount does not come directly out of your account. Instead, you are responsible for making the payment and determining how much to pay. This can make it easy to spend more than you can afford without noticing until your statement comes. While tempting to only make the small minimum payment, that approach will keep the balance high and cost you more in the end. High debt with late or missed payments damages your credit, making it more difficult to acquire credit in the future. So, when using credit, pay as much as you can and on time every month.
Your situation determines if paying by debit or credit is right for you. If you want to talk more about credit and debit options, reach out to a friendly Michigan Schools and Government Credit Union team member. We’re here and love to help our members!
It’s a Money Thing- Comparing Cards
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