A tale as old as time. A song as old as rhyme, debit and credit. Wait, that’s not how that goes? Like Belle’s need to decide between her father’s freedom and her own or Ariel deciding between her voice or the person she wants to be, many people are of the mind that we’re forced to choose team debit or credit. But why can’t our fairytale end with a little of both?
Let’s get into the key differences and benefits of each to find out if dreams just might come true.
How Do Debit Cards Work?
Move over cash. Debit is the new king. Every time you use your debit card, funds are pulled directly from your linked checking account. Instead of weighing yourself down with paper and coins, a little piece of plastic can do the same thing.
Benefits of Debit Cards
- Help Control Your Spending: Because debit card purchases draw directly from your checking account, they help you maintain control of your budget and avoid spending more than you have.
- Overdraft Options: Financial institutions (especially credit unions!) tend to provide overdraft protection options, minimizing fees if you occasionally spend more than your available balance.
- Access Your Cash: Need cash? Most credit union debit cards come with broad ATM network access. BHFCU members can snag cash from 35,000 locations free of charge. Plus, contactless options make payments easy and secure.
- Interest-Free Spending: Debit cards don’t accumulate interest because you’re using your own money rather than borrowing it.
- Cash Equivalent Discounts: Some businesses will incentivize customers to use debit by giving like-cash discounts for using that card type versus credit.
What Can Credit Cards Do for You?
Like Cinderella’s castle, credit cards can come with a lot of bells and whistles making them enticing. (Hello, airline miles and cash back!) But be cautious because they also come with more responsibility. Credit cards provide you with a line of credit from your financial institution. When you spend on your credit card, you’re taking out a mini loan you must repay later. If you don’t pay on time, you will be charged interest on the amount remaining (aka your balance).
Benefits of Credit Cards
- Build Your Credit: Using your credit card responsibly is one of the easiest ways to start building and continue improving your credit score.
- Get Rewarded for Spending: Cash back, points, and travel rewards, oh my! Financial institutions will often offer rewards programs to incentivize credit card usage.
- Increased Fraud Protection: Credit cards often come with enhanced fraud protection. Real-time alerts, dedicated support lines, and secure contactless payments give you peace of mind.
- Boost Your Spending Power: A credit card gives you the ability to make purchases even if you don’t have the cash to cover it at the time. Emergencies come up. This tool gives you the flexibility to manage them.
Decide Which Approach is Right for You!
Your current financial situation will dictate which spending approach is right for you. Take a step back and ask yourself, “What are my financial goals right now?” Are you focused on reducing debt or cutting back on spending? Now may be the time to reach for your debit card. Or are you ready to start building your credit and cashing in on rewards? Sounds like a credit card may be right for you.
The downfall of Goldilocks was her inability to decide between her options. But what if you didn’t have to choose? Ideally, you’ll reach a point where a balance of both debit and credit usage helps keep your budget in line and further your financial future.
