So a few months back, I wrote The Responsible One’s Guide to Convincing Credit Companies You’re Not a Worthless Bag of Shit, and recently I received a question asking about the difference between credit and debit, so this is what that is.
Alright, let’s talk about debit cards. Debit cards, also called bank cards, are the new cash. They’re this piece of plastic that you can use to buy shit pretty much wherever and they’re linked directly to your checking account. Back in my day, when debit cards were first getting started, they were basically like checks, and only linked to your specific bank, which meant that if you shopped anywhere that didn’t know your bank, the store wouldn’t take it and you were basically fucked. But, dear children, you are in luck, because unless you go to a small town bank that’s stuck in the 1990s, your debit card is backed by a credit company and is therefore more credible, yay! That little Mastercard or Visa logo is probably why people don’t know the difference between credit and debit.
Think of it this way, debit cards are like checks in digital form. You are limited to what’s in your bank account. This could be a lot or this could be absolutely fucking nothing if you’re poor as dirt (like me). Sometimes you try to spend more than is in your account because, well, probably because you’re a fucking idiot, and depending on what kind of checking account you have, this could go in a few different ways. 1) Your card gets declined and you’re forced to pay in more, ahem, creative ways. 2) Your bank pays the bill for you, but you now owe them for that and for saving your sorry ass. That fun little surcharge is called an overdraft fee, which brings us to 3) Overdraft Protection. If you’re lucky and moderately trustworthy, you might have this. Basically, the bank says “Hey, you seem like a pretty good guy, let me loan you a little bit of money to cover that charge. I’m sure it was important. It’s cool man, I got this, you can pay me back tomorrow.” In this case, you don’t pay the overdraft fee—but you do pay for overdraft protection. And if you’re someone that always knows exactly what’s in their account (because it’s only 2¢ anyway) and you never use more than you have, you’re paying for something you’ll never use. Which is why banks will try to sell you on this and take advantage of you. But, if you are at the risk of overdrawing, this protection could be a life-saver. So that decision is up to you and your bank.
Okay, to summarize so far: debit cards are from your bank and linked to your checking account. This is money you actually own. Which brings us to credit cards, which is a card linked to money someone else owns. That someone else is a major company and they will either be your best friend or your worst enemy, so be very careful here. Once you’ve convinced the credit company that you’re semi-trustworthy, they give you a piece of plastic with your name on it and link it to a line of credit.
Do not think of this as free money. The best thing you can do is imagine your credit card company as a really shady and really fucking mean loan shark. He’s gonna give you, let’s say, $500 to start. He doesn’t know you yet and you probably don’t have a credit history or make all that much money because you’re a poor college student, so he’s not going to trust you with very much right now. So you have this money available to you and you can use it anywhere, at any time. But, even though it’s not attached to your bank account now, you still need to pay that. At the end of the month, the shark’s gonna want back whatever of his money you spent. Maybe you went out and bought $500 worth of My Little Pony memorabilia because you’ve never had that much money at once and you panicked and spent it all immediately. Fine. Whatever. You now own the guy $500. If you do not have $500 on you, you can set up a payment plan, only this guy’s real tough and he wants back his $500, plus 18% on whatever you don’t pay him right away. This rate—your credit rate—will vary based on your history, your income, the company, and your general overall level of shadiness. You’re probably looking at something pretty high, unfortunately. Actually, 18% might look like a fever dream to you. So anyway, now you owe a shit ton of money because you used more than you had. Sucks to be you.
So why get a credit card at all? Because they can help you pay for big ticket items like washer/dryer sets and concert tickets while you’re waiting for your next paycheck. Maybe you’re one of those poor unfortunate souls that only gets paid once a month and you’re still a week and a half away from payday and no matter how much you want to see the Wiggles, you need like, food and shit. So you use the credit card to buy the tickets now, but you pay it off as soon as you get paid. Credit cards are a good little buffer that can get you out of some tight jams. Also, credit cards come with great rewards programs, which I talked about in my previous post. Definitely take advantage of those if you can. Really, if you don’t, you’re a dumbass.
Alright, so, security. What’s the difference between credit and debit? Well, when you use the card in the store, the general rule of thumb for credit is you sign the receipt, and that goes for debit too, unless you scan the card yourself, in which case, it’s gonna ask for your PIN. That means Personal Identity Number and I really shouldn’t have to explain beyond that. So, ideally, no one knows your PIN or can sign your name like you do. We don’t really live in an ideal world, though. Statistically, unless you know the fucker, the chances are pretty good that the guy who stole your debit card won’t know your PIN, and he’ll have to run the card as credit. If you see charges on your card that aren’t yours, you can get copies of that signature and hopefully prove that it wasn’t your signature.
Credit cards also have some built-in security and are more likely to cover you for fraudulent charges. Oh shit, that was a big word. Okay. I’ll slow it down for you. These are charges that you didn’t make. Some asshole snagged your new card out of your mailbox and went to town with it, or maybe your numbers were stolen a la last year’s Target debacle. If you report these, the credit card might be able to cancel the charges or at least take them off your account. This is when it’s important to be on the credit company’s good side and have a good plan. Banks, on the other hand, might not be in a good enough position to do this for you. So while they can promise you immediate funds, they can’t do a whole lot to get your money back after it’s been stolen.
Advantages of Debit
- Immediate funds
- Overdraft Protection (maybe)
- Easy access to your checking account without having to use check or cash
Disadvantages of Debit
- May not be accepted everywhere or small stores might charge you a service fee or require a minimum purchase amount to use
- You’re kind of fucked if it gets stolen.
Advantages of Credit
- Accepted basically everywhere (except for that gas station in Cabin in the Woods, but try to avoid that place in general)
- Easy to pay off big items over time
- Access to funds while you’re waiting for a paycheck
- Added security against fraudulent charges
Disadvantages of Credit
- High credit rates - you pay more than you borrowed if you don’t pay it back right away
- Doesn’t immediately come out of your bank account - budgeting skills are required
- No overdraft protection - card will be denied (usually, not always the case)
That’s my quick and dirty guide to debit vs credit. It’s entirely up to you and your financial situation which card you choose to get and which you choose to use at what time. I recommend having both, but this requires a lot of financial responsibility and you assholes may not be up to the challenge.