Confused about the difference between a debit card and a credit card?  It’s easy to see why.   Growing up, you always saw adults using plastic to pay for their purchases.  Debit cards and credit cards look very much alike, but it’s important to know that there are significant differences in where the money is taken from when the purchase made.

A few similarities between debit cards and credit cards are:
  • They can both be swiped at retailers to make purchases;
  • They both carry the logo of a major credit card company such as Visa or MasterCard;
  • Both are issued by most financial institutions, including McCone County Federal Credit Union.
The similarities end there.  Here’s the lowdown on the benefits and drawbacks of debit and credit.   Debit Cards.  A debit card directly accesses your checking account where you have deposited money from your after school job or chores or gifts from Grandma.  If you purchase $10 of music from iTunes with your debit card, that money has left your checking account and you need to keep track of this on a register so that you know how much remains before you make more purchases.   You do not owe anyone interest on this purchase because it came from funds that were available and already deposited.

  Keep in mind that some financial institutions will allow you to have a service called overdraft protection which can cost you a lot of money in fees if you choose to use it.  For example, if you purchase the same $10 of songs from iTunes but only had $5 in your account, overdraft protection would approve the purchase but overdraw your account in to the NEGATIVE and charge you a fee of anywhere from $15-$35 or more depending on your financial institution.  $10 worth of songs could end up costing you over $40!!!  You are also obligated to the financial institution to bring your account to a positive balance as soon as possible.

  Debit cards are a great convenience for avoiding cash, checks and credit cards, but they still require responsibility!

  Credit Cards.  A credit card is essentially a loan or line-of-credit that has been given to you by a financial institution.  When you purchase $10 worth of songs on iTunes with your credit card, the money is drawn from a line of credit which you have agreed to pay back within a certain grace period.   If you don’t pay it back before that period ends, interest starts to build up on that purchase, often at very high interest rates.  Also, failure to pay your credit card bill will result in the possibility of a reduced credit score:  an important idea to remember if there is a dream car out there you are wanting to buy and get financing for!

  Credit cards will often offer rewards programs, but the value of those rewards is minimal (and may actually cost you) if you don’t pay the card in full each month.  Keep this in mind as you make the decision of whether or not to use debit or credit.

  As always, McCone County Federal Credit Union is here to help you with any financial questions you may have as you venture out in to the wild world of money.