Ultimate Guide to Credit vs Debit Cards

Hello ladies & lady lads, welcome back to Monarch.

New day, new opportunities to level up your financial game 👀💪

Today’s article is dedicated to understanding both types of plastic (or metal 🏀🤑) cards that occupy prime real estate in your purse, wallet, or the shoebox beside your bed.

Today’s Monarch Menu:

• Debit cards.. what?

• Credit cards.. who?

• Pros & cons for each type

• Credit card spending example (certified helpful ✅🚀)

• Which card is best for you?

(The “..what” and “..who” above is in honor of Madelyn & I’s favorite “I Think You Should Leave” skit. You need to watch this skit right now.)

Debit Cards: Your Financial Anchor ⚓

What is a Debit Card?

A debit card gives you direct access to the money in your checking account, deducting the amount instantly when you make a purchase.

How Do Debit Cards Work?

When you buy something using the card, the cost of that item is immediately taken out of your account.

Example: If you enter the Starbucks drive through with $100 in your checking account, and spend $10 on an Impossible Sandwich and a Grande Pumpkin Spice Latte with Oat Milk (🤞🏼🎃⛽), your checking account will drop to $90 the second your debit card is swiped.

✅ Advantages of Debit Cards

1. Budget-Friendly: You can only spend what you have, helping you avoid debt

2. No Interest: You're not borrowing money, so no interest accrues over time

3. Controlled Spending: Your funds are limited to what you actively have in your bank account, which can prevent you from overspending

4. Convenience: Quick access to your money without the need for cash or checks

🛑 Downsides of Debit Cards

1. Limited Fraud Protection: When you use a debit card, you have less protection against fraud compared to using a credit card

2. Overdraft Fees: Spending more than your account balance can result in costly bank fees

3. No Credit Boost: Debit card activity doesn't impact your credit history/credit score

4. Fewer Perks: Generally, you won't find the same level of rewards or benefits as you do with credit cards

Credit Cards: Your Financial Wand 🪄

What is a Credit Card?

A credit card is a ✨financial tool✨ that allows you to borrow funds up to a pre-set limit from a lending institution, usually a bank. This means you can shop now and settle the bill later.

In other words: A bank lets you borrow up to a certain amount of money each month to buy things, like a mini-loan that you can use again & again.

How Do Credit Cards Work?

Whenever you swipe or tap a credit card, the issuer 🏦 (bank or credit card company) pays the merchant 🛍️ (whatever you’re buying), and you agree to pay back the borrowed amount.

You'll get a monthly statement detailing your transactions, the minimum payment due, and the payment deadline.

🚨 Important: To dodge interest fees, pay off your full monthly balance by the due date. The ‘minimum payment due’ ensures you won’t lose access to your credit card, but you'll incur interest on the remaining balance (which is: no bueno ‼️)

 ✅ Advantages of Credit Cards

1. Flexible Payments: Enjoy the liberty to purchase now and pay later.

2. Credit Building: Regular, responsible use can boost your credit score - a key factor in securing loans and favorable interest rates.

3. Rewards and Perks: Earn rewards like cash back, travel points, and gain access to perks like travel insurance and purchase protection.

4. Fraud Safeguards: Most credit cards offer robust fraud protection, absolving you of liability for unauthorized transactions.

🛑 Downsides of Credit Cards

1. Debt Risk: The freedom to spend can lead to overwhelming debt if you're not cautious.

2. Interest Costs: Carrying a balance incurs interest, increasing your debt over time.

3. Fees: Beware of various fees like annual charges, late fees, and balance transfer fees. Always read the fine print (note: not all credit cards have annual fees, but typically the higher the annual fee, the higher potential rewards)

4. Credit Score Impact: Poor management, like late payments, can negatively affect your credit score and future buying power

👑 Making Your Royal Choice

Consider your financial aspirations, spending behavior, and what you value most in a card when deciding between the two:

1. Spending Style: If budgeting isn't your strong suit, a debit card may help keep you in check until you solidify a financial plan

2. Credit Goals: To establish or improve credit, a responsibly used credit card can be your greatest ally 👯‍♀️

3. Rewards: If perks entice you, credit cards offer much better deals

4. Discipline: Credit cards require commitment to repayments in order to avoid unnecessary fees

5. Emergency Fund: Having either type of card gives you more options in a financial pinch, though a credit card will give you much more initial flexibility 🤸🏼‍♂️

In Conclusion

Whether you opt for a credit card's financial flexibility or a debit card's disciplined approach is up to you.

The good news is: by learning the nuances of credit and debit cards, you're better equipped to make choices that align with your financial ambitions.

And that, Monarch reader, is the cornerstone of financial empowerment 🌟💳

Live, laugh, love u all,

Bailey

(P.S. → Check out the sick butterfly poll 🦋)

(P.S.² → Check out your dope unique referral link 👀)

Sources

1. Capital One: Quicksilver Card

2. Investopedia: Credit Cards vs. Debit Cards - What’s the Difference?

3. Credit Karma: The difference between a debit card and a credit card

4. Capital One: What’s the difference between debit and credit cards?