You’ll learn everything you need to about using a debit card or credit card.
It’s important to know the differences between a debit and credit card, whether you are using it for business or personal purposes.
The Gist
For those who are already financially savvy, we’ll get straight to it:
Credit Card: Use the credit card as much as possible, unless you are offered a cash discount. Your credit card should be paid off every month.
Use your debit card only for ATM withdrawals.
Are you not very financially savvy yet? This guide will help you decide between debit and credit cards.
You could lose a lot of money if you do not understand the difference between credit and debit cards.
Table of Contents
What is a debit card?
What is a credit card?
Why You Should Use A Credit Card Instead of a Debit card
The 3 Best Credit Cards for Us
Credit Cards for Business
What is a debit card?
Your bank will give you a Debit Card when you open a Checking Account. These cards allow you to access your money directly. You have no money on your account? Insufficient funds will result in the card being declined.
You can use your debit card as long as you have money in your account to withdraw cash from an ATM or to purchase goods at any store that accepts credit cards. It is also possible to use it online to make recurring or one-off purchases.
Beware, it depends on your bank! Your bank may allow you to buy an item even if you don’t have enough money to pay for it.
You will have negative funds on your account. You will also be charged a fee of about $35 for insufficient funds/overdraft.
If your bank is really classy, it may allow you to make multiple transactions and charge a fee per transaction.
Debit cards look just like credit cards. There will be a Visa logo, a magnetic stripe on the back and now a chip to make transactions more secure.
Beware of the tricks! Although debit cards and credit card look alike, they behave very differently!
What is a credit card?
Credit cards are a way to purchase items on credit, with the understanding that the company will be paid back at a certain time.
In essence, the credit card company gives you money to purchase things.
You must pay back any purchases made with your credit card to the company.
Credit cards can be used to purchase goods and services at any store that accepts them, online or in person. Credit cards do not allow you to store money like debit cards do, so you can’t use them to withdraw cash from an ATM. Cash advances are available with credit cards but I strongly advise against it.
It is also more common for people to have several credit cards, whereas having a single account with a bank is the norm. Just focus on one card at a moment for now.
How to Get a Credit Card
A credit card is not provided by the bank, but you have to request one.
It’s easier to open a card with a credit than one without, since you can do so from the comfort of your couch. You also don’t need to make an initial deposit.
Credit Card Companies will run a credit report on you, and ask questions about your income. Normaly, the decision to approve or decline you is made automatically.
You will know when your credit card is going to arrive in the mail if you are approved.
FYI: Credit Cards are usually packaged in plain, nondescript envelopes. Credit Cards are not like those elaborate and colorful random offers of credit cards to get you sign up. They come in a discrete envelope to make it less likely that someone will steal your Credit Card when you receive it.
Credit Card Limits
The credit card companies need to know how much credit they can give you. Credit limits are the amount of credit that they give you.
Have you ever heard of someone who maxed out their credit card? This means that they have spent all the money their credit card company will allow them to spend.
Example of Credit Limit:
The company has agreed to give you a limit of $10,000. The card can be used to make purchases up to $10,000. After $10,000, any transaction will be rejected.
How do you pay off $5,000 from your credit card account? You owe $5k but you can still spend another $5,000 because you have a limit of $10,000.
Credit limits are different for each person. The companies determine the amount of money they are willing to lend you based upon your income and credit score. Credit card companies are giving you money for spending. They want their money back!
Credit limits can be different. As low as $300 has been seen. Your credit card limit can be anywhere between $5,000 and $20,000 with good credit and a decent income. You can get a black credit card with no limits if you have a good income and good credit.
Credit Cards: The Catch-22
Never used a credit card? You might then be denied credit because of a lack thereof. What a Catch-22! !
You can’t work as a waiter in a restaurant if you don’t have any restaurant experience.
Nearly anyone can do this job, but you need to have experience.
Note: We understand that working in the service sector is stressful and difficult, and we pay our waitstaff well. We respect you. Please don’t spit on our food …)
Never had a credit card? How to get approved
If you have never held a credit card, it may be difficult to obtain one.
You’ll build credit once you get one, and you will find it easier to obtain another card, a loan, or a utility account in the future. It is assumed that you will follow our advice to use your credit card correctly.
You can get your first credit card by following these steps:
Speak to your bank. You may be approved if you have a good account.
Capital One is a great place to start. Capital One will give more credit cards than any other institution to people with little or no credit history. This may be a very low credit limit but it is a good first step in building credit to get a higher limit.
Confirm that your credit score will be affected. You should be approved if you have a co-signer who has good credit. Be very careful when obtaining a cosigner to a credit card. It is likely that this person will be a close family friend or romantic partner. Money can do strange things to people. If something goes wrong with your credit card, like accumulating fees and interest from unpaid balances or accumulating charges, the cosigner will be rightfully upset about being fiscally responsible. Be careful.
Credit Cards
Why You Should Use A Credit Card Instead of a Debit card
What you need to know:
POINTS!
Financial Security
Building and maintaining credit history
What are POINTS?
Every transaction on your credit card will earn you points. The card you use will determine the amount of points per transaction.
Points of Example
Earn 1 point per $1 spent. You spend $1,000.00 on a computer. You receive 1,000 points you can use to redeem.
What are the real value of points? For cashback, it depends on the company. But typically they are worth 1 cent each. You would receive $10 in cash for 1,000 points.
What? Only 1 cent per point? Yup. Do you know how many cents are returned for every dollar you spend on a debit-card? Zilch. Zero. None. Nada.
How to use Rewards Points
Cash Back
Gift Cards
Travel
Online Shopping
Your points can be used to book travel, such as hotels or airfare, or even online shopping at approved retailers.
Not all credit card companies offer the same retailer. You should compare credit card rewards sections if you want to use your points for online shopping or travel.
Why not use your points as cash to buy travel or online shop?
You will receive 1 cent per point once you have earned a point.
You can sometimes get up to 1.2 cents for each point if you shop or book online using the rewards program of your credit card.
Here’s where you can use your points as a game. It’s only possible to play this game if you have a credit card.
Debit Card Security vs. Credit Card Security
Credit cards provide better financial security than debit cards, as they are not directly linked to your bank account.
Redit card companies are vigilant in their monitoring of fraud. What happens if your information is compromised and someone purchases items on your account?
In most cases, you’ll be reimbursed for fraudulent charges on your credit card. Normaly, you will not be refunded if your debit card is used fraudulently. Debit cards can also be used to withdraw money from ATMs. Almost never are fraudulent ATM withdrawals made with a debit card reimbursed.
Do you think it can’t happen to your? If it’s not that waitress from the JFK Airport Restaurant who copied my credit cards without my knowledge and fraudulently used it for over $700 in purchases at Macy’s, then your information is probably being stolen by a hack.
Have you ever heard of data being hacked by a company? Target, Home Depot Marriott, eBay etc.
Moral of the story: You are better protected against fraud when you use a credit card rather than a debit card. I was refunded the fraudulent charges.
Recently, my friend’s debit card number was stolen. Someone drew $300 out of her account at an ATM. The bank caught the fraud and canceled the debit card before further damage was done. However, the money that had been withdrawn was not reimbursed.
Most fraudulent activity on credit card is refunded. You don’t have to worry because a credit card can’t be used to withdraw money from your checking account.
Credit cards are safer financially than debit cards. You can take this to the bank.
Credit History: Building and maintaining a good credit history
It is important to have a good credit history. This will help you in almost every financial transaction. Credit cards can help you establish a good history of credit.
You may need certain things that are impacted by your credit score or history:
Home Mortgage
Financing
How to get a cell on a monthly plan
How to Lease or Buy a Car
How to get a personal or business loan
Utilities
Before supplying power, some Electric and Gas companies will check your credit rating.
You can build your credit history by using a credit card, but it must be a good one.
How to maintain a good credit history and a good credit score:
Repay your credit card each month on time.
Pay the entire statement balance for the previous month.
Keep an old card open if you don’t use it. Closing an account can negatively impact your credit score in a variety of ways.
LendEDU offers a short article on what you shouldn’t use your credit card for. This is from 2015 but it still applies today. Here are 6 things you shouldn’t be paying with a credit card
The Philosophy of Credit Cards
Use your credit card as if you were “writing a cheque” or “paying in cash.”
It is important to have enough money in your account for the amount you will owe. You wouldn’t go to a store and try to pay $100 for something when you have only $50 in your wallet or write a check which will bounce. No.
You can still make the purchase if the money is not in your account, but it will be in a week. The credit card bill won’t be due for another 3 weeks. Don’t buy anything you can’t afford.
Don’t use your credit card to fund a lifestyle that you cannot afford.
Too many people use credit cards to match the lifestyle of others they see on social media and in their everyday lives.
Debt isn’t cool. You may look good with a new pair of kicks or a new vehicle, but it isn’t appealing.
You can lose a lot of money if you don’t pay off your credit card when it is due. Credit card interest rates are expensive.
Work card can be used to pay for a lifestyle that you can afford. You don’t have enough cash to make ends meet, but you still need to survive. You can borrow money from a family member or friend, or use a Home Equity Line of Credit. Credit card interest rates are often over 20%.
You can get a credit card that does not charge an annual fee.
Credit cards may charge an annual fee to use them. This is usually because they will give you more points if you make certain purchases.
If you don’t have much money or plan to buy a lot with your card, you may not be able to justify the annual fee.
Calculate if you can benefit from a more expensive card. It’s probably best to stick with a credit card that doesn’t charge an annual fee.
Common Credit Card Objections
It’s like I have to pay twice for the same transaction.
Ugh. Really? Then, why not enjoy the rewards you receive by using a credit cards and literally wipe out hundreds of dollars each year?
Retailers include credit card fees in their pricing. If you are not paying in cash, the retailer will charge a fee for accepting your debit or credit card. Using a debit card, no points. Credit card users get POINTS. This could add up to hundreds of dollars or more per year.
I don’t wish to pay the entire interest.
Pay your credit card bill on time
Do not carry a balance and pay interest
We trust you to properly use your credit card and to get those points. You won’t pay a lot of interest if you follow the steps above.
It is much easier to carry a debit card than a credit card.
It is stupid to use a debit card. This increases the likelihood that someone could access funds from your checking account and not get them back.
Credit cards give you points, and they protect you from fraudulent activities.
You can clearly see who wins the debate between credit cards and debit cards.
The 3 Best Credit Cards for Us
Are you ready to get a credit card? We have done the research for you and found these credit cards. We hope you enjoy them!
These cards are listed by the easiest ones to be approved. These cards all have no annual fees.
Capital One Secured MasterCard
Credit Score
Rebuilding Credit
Few or no credit history
The Difference
This is a secured card. As a security measure, the credit card provider may require a refundable deposit up to $200 in case your balance is not paid. The deposit is not subject to interest.
Initial credit limit is $200. This is a small amount but you can increase your credit line if you make on-time monthly payments for the first five months. If you would like, you can pay more for your security deposit in order to get a larger credit line.
The Bottom Line
If you don’t have a credit history or bad credit, this is the best option for your first credit card. Capital One also offers other credit cards, such as the Platinum or Journey Student Rewards that do not require any deposit and only require a Credit Score of 650.
Do you have questions about whether to apply for a Secured Mastercard, or a standard credit card such as the Platinum? Contact Capital One to discuss your options before you apply.
Chase Freedom Unlimited
Credit Score Required: Average
The Difference
Enjoy a 1.5% Cashback on All Purchases
Spend $500 in the first 3 months and get a $150 bonus
Bottom Line
Chase offers a range of credit cards with a solid rewards program. It is not as easy to obtain as the Capital One secured Mastercard, but it’s a good card if approved.
The Freedom Unlimited credit card is pretty standard. Chase offers a card similar to Freedom.
Remember when we said that choosing the right credit card is largely based on which rewards you choose?
All other purchases earn 1% cashback. Freedom Unlimited offers either straight 1.5% cashback or up to $1,500 on select purchases.
Both Freedom Unlimited and Freedom cards are good. Both cards offer a $150 bonus after qualifying spending. It’s up to you whether or not you want the points system. You can make your own decision.
Amazon Prime Rewards Visa
Good Credit Score Required
Amazon Prime Member is required.
The Difference
On approval, you’ll receive a $70 Amazon gift card.
You will receive 5% on all purchases made on Amazon.com or at Whole Foods. Restaurants, gas stations and drugstores will give you 2%. All other purchases get 1% back.
No Foreign Transaction Fees.
The Bottom Line
This card is for Amazon Prime Members with good credit!
You can get cash back on all your Amazon purchases, including the things you would normally buy.
This card requires good credit. You don’t have good credit? Use this to motivate you to improve your credit rating by following our credit philosophy.
Credit Cards for Business
Do you want some advice as a business person on how to use credit cards in your business? This author, Andrew Greenspan is the Founder of Wexford Entrepreneurial Partners. Check out his article on Credit Cards for Business.
