Payment 101: Credit or Debit?

Have you ever wondered what even is the rectangle looking thing you swipe to buy your groceries? Think about it, that one card has so many abilities that it provides. But an interesting thing is that there are different cards, each serving a different purpose. It is easy to think that all cards allow you to buy things, but there are different types of cards, each one that has different abilities and restrictions. Let’s start off with debit cards.

Debit Cards:

Debit cards allow people to access funds directly from their bank accounts in order to make their expenditures. An advantage that makes many people choose a debit card is that it efficiently allows users to manage their spending, as it avoids debt as they can only spend the amount that is present in the amount. In addition, debit cards are cheaper to use than credit cards. There are some cons that come with this though. One of these cons is the limited protection compared to credit cards, which can make people more prone to unauthorized transactions. In addition to that, in the case of spending more money than what is present in their account, a debit card can lead to overdraft fees.

Credit Cards:

Credit cards allow people to borrow money until a certain limit in order to make expenditures. This borrowed money is expected to be paid back later, with interest of course. An advantage with credit cards is the ability to build credit history and credit score, which improves the ability to receive loans and interest rates for the future years. There are also potential benefits with credit cards, such as reward programs and travel insurance, which makes it appealing for frequent shoppers and travelers. A possible downside to credit cards is the non-restrictive ability and freedom that comes with it. They can lead to overspending, which can accumulate debt easily if not managed properly. In addition, if payments are not made on time, it can impact credit scores, which will negatively affect users’ ability to take out loans and their interest rates. There are multiple different types of credit cards, here are some:

1. Rewards Cards

These are credit cards that offer points and other incentives on every expenditure made. These cards also come with rewards in categories such as travel or dining (Cash back cards and Travel cards)

Top Rewards Cards:

• Chase Sapphire Preferred® Card

• Capital One Venture X Rewards Card

• American Express Platinum Card

2. Business Cards

Business credit cards are designed for business owners. These cards allow owners to separate personal and business expenditures while managing their cash flow. These cards often offer higher credit limits and better rewards programs tailored to business purchases.

Top Business Cards:

• American Express Business Platinum Card

• Ink Business Preferred Credit Card

3. Student Cards

Student credit cards are designed for college students who want to slowly start building their credit history while managing their finances. These cards usually have lower credit limits and often also offer rewards and cash-back. This is a mix of a credit card and a debit card, often used as a transition.

• Discover it® Student Chrome

• Capital One SavorOne Student Cash Rewards Credit Card

What to choose:

For young teenagers and young adults who are getting their first cards, it is recommended to get a debit card.

A debit card, with its restrictions, is perfect for a teenager as it ensures that they can not get into debt and will in turn also teach them responsibility and financial management skills.

For someone who is above 18 and is going to college, a student credit card is recommended. A student credit card is the perfect blend between a credit and debit card. While it has a lower credit limit which is slightly restrictive in expenditure, it also offers rewards and cash-back like a credit card does. This allows for the student to experience the perks of a credit card while also being responsible in their expenditure.

Once one is completed with their education, a standard credit card is recommended (or a business card in the case of owning a business). A regular credit card allows the user to build a good credit score and have a higher credit limit, which can allow for loans to be taken out easier and improve interest rates. As the credit card is being used more and the credit score is being built, a rewards card can also be used in the case of the user being someone that enjoys travel and dining.