dollar signed being squeezed

The Importance of Managing Money

Introduction > Take the Test > Where Do You Get Your Money? > How To Handle Money > Budgeting and Saving > Conclusion

How To Handle Money > Checking Accounts > Saving Accounts > How to Open a Bank Account > Cash or Credit? > Advantages and Disadvantages of Credit > How to Open/Apply for an Account

Cash or Credit?

The Difference Between Credit and Debit Cards

When paying for purchases and bills you often have several options: cash, money order, check, debit or credit. While most places accept cash, more and more places are now accepting credit and debit cards. Using a credit or debit card can make your life easier (you don't need to carry a lot of cash, show identification when writing a check, and can often avoid lines by buying things ahead of time), but it is important to understand how you are paying for your purchases.

Debit Cards

Debit cards allow you to pay for purchases without using cash or writing a check, but they take the money directly from your checking or savings account. This means that you can only afford to use your debit card to make purchases if you can afford to pay for your purchase in cash.

Debit cards can be useful if you don't want to carry large amounts of cash or want to buy things by mail, online or by telephone (purchases that usually require a credit or debit card.)

Many banks now offer ATM cards that also work as debit cards (they usually have a Visa or MasterCard logo.) If you are interested in getting a debit card, check with your bank. Just be sure to ask if you will pay any fee for your debit card (like monthly or yearly fees, or a fee for each time of use.) Most banks that offer debit cards do not charge for using it, or charge you only a one-time or small yearly fee.

Credit Cards

Credit cards give you a line of credit (loan of money) that you can use for purchases. There is usually a limit to your credit line (anywhere from one hundred dollars to thousands of dollars) that the company determines based on your yearly income and credit history (whether you have a good record of paying bills and balancing your bank accounts.)

Your credit line does not depend upon how much money you actually have, which is how some people get into debt with credit cards. You may have a credit line of $500 and may spend up to that amount, but only have $200 in savings, which means you will owe the credit card company money at the end of the month.

All credit cards require you to pay off some or all of your charges at the end of the month. Cards such as American Express require you to pay the full amount of what you have charged over the month. Other cards, such as Visa, MasterCard, Discover, and store credit cards, often ask for a small payment, but then charge you large amounts of interest on the charges that you do not pay off. You can learn more about the advantages and disadvantages of credit cards in the next section.

Next: Advantages and Disadvantages of Credit

Mountain State Centers for Independent Living