Credit Cards vs. Debit Cards
In college it is important to have access to funds, especially in the case of emergencies. Having a debit card gives you access to your checking accounts, no checks required. When you use a credit card, it is like borrowing new money. This "new" money sounds awesome, but it comes with pretty substantial costs. These cards may look similar, but they have quite a few differences.
Check out Credit Card Insider for the scoop on getting a credit card and building credit.
Credit Card Terms
There are tons of terms that get linked to credit cards. Here are a few.
- Credit Limit: The amount of money that can be charged to an account. The amount is determined when you apply for the credit card.
- Principal: This is the amount you owe, without adding interest. When you buy a $50 shirt with a credit card, it will start accruing interest after your grace period. When you get your statement your principal will be $50. You will owe that $50 plus interest.
- Interest Rate: This is the rate that your financial institution charges you for use of the funds. The number given is a yearly rate.To figure out what you are being charged monthly you need to divide that yearly interest rate by 12. This will give you the rate that is actually charged to your principal between monthly statements.The rate can increase after an initial period ends or after a late payment.
- Balance: The number that the cardholder owes. This is the principal plus the accrued interest.
- Grace Period: This is the time during which an individual can pay the credit card bill without accruing more interest. This means that once you purchase an item with a credit card you have "X" number of days before it accrues interest. Each company usually has slightly different terms in reference to grace period.
- Available Credit: This is the amount that can still be purchased with the card. The way to think about this is the credit limit minus the balance.
Credit Card Fees
Shopping for a credit card can be tough. There are many features that can make this decision easier to make. Cards can have very different reward incentives; check out CashCourse to see some of these incentives. It is really important to understand the fees associated with a credit card. Here are some common fees associated with credit cards.
- Application: A fee paid to apply for the card.
- Set-Up: Fee charged when one opens up the credit card.
- Annual, Membership, or Participation: Fee paid just for use of the credit card, sometimes this fee is spread out into monthly installments.
- Late-Payment: Fee that is charged if a payment is not received by the due date.
- Over-the-Limit: A fee charged when the cardholder makes a purchase that puts the balance over the credit limit. (NOTE: Under new government regulations the cardholder must authorize the ability to go over the credit limit. If the action is not authorized the transaction will be rejected.)
- Credit-Limit-Increase: Fee charged if the cardholder receives an increase in your credit limit.
Credit Cards are one of the easiest ways to obtain a line of credit, or a loan. These cards can provide an individual with an opportunity to build credit. Credit cards are a big commitment. It may seem obvious but it is important to read the terms and conditions before signing the agreement. It is important to know what to expect. There are a few important things to keep in mind when using credit cards.
Any late payment or a payment under the minimum will hurt a credit score. If you go over 30% of your credit limit it can negatively affect your score. Read your mail!!! Credit card companies are required to notify customers at least 45 days in advance of any rate changes. For more information on proper credit card handling check out CashCourse.
Debit cards allow the owner access to the owner's accounts. The most common account that is linked is the checking account. Debit cards allow the holder to swipe a debit card, rather than writing a check. These cards are issued by the institution that issues the accounts. Deciding to link a debit card to an account will usually cost an initial fee between $5 and $25.
Debit cards give the holder the benefits of using an automated-teller machine (ATM is the more common term). From an ATM the cardholder can check their account balance, transfer funds between accounts, withdraw cash, and even buy stamps. ATM's are located all over the world; this means that debit card holders have access to their accounts at many points across the globe. Debit cards have their own fees, it is important to keep these fees in mind when looking at different financial institution.
- One-Time Activation: Fee paid before you get the card. These fees range from $5 to $100.
- Monthly or Annual: Fee paid at the beginning of each period for continuing use of the debit card.
- ATM Withdrawal: Fee charged for taking money out of an ATM. This fee is generally specific to the ATM that the money is drawn from. Some banks will not charge you for withdrawals out of ATMs that they own. There are institutions that will even reimburse you for ATM fees from other banks' ATMs.
- ATM Balance: Fee charged for checking account balances on an ATM. This fee is generally $1 but a lot of banks don't charge for this feature.
- Inactivity Charge: Fee charged when a debit goes a certain length of time without being used.Transaction: Fee charged every time the debit card is used to make a purchase. This fee is generally $.25 to $3 per transaction.
- Card Replacement: When a customer loses their card there is generally a fee to replace the card.
- Card Renewal: A fee charged when the customer needs a new card. Each debit card has an expiration date, which is located on the front of the card.