Credit cards versus debit cards,
which one is better? In today's video, you're going to learn about the pros
and cons of debit cards and credit cards and which one I personally recommend.
I am Tiffany Thomas with Wealthy
Tiffany Dotcom, and I achieved financial freedom at age thirty eight.
And if you are looking to achieve financial freedom at a young age as well,
hit that like button and hit the subscribe button and we're going to dive right in.
All right,
let's first talk about what is a debit card and what is a credit card.
A debit card is a payment card that deducts money directly
from a consumer's checking account when it is used.
Basically, when you are using a debit
card, how much ever the amount you are spending at the store will automatically
and immediately be deducted from your checking account.
A credit card is issued from a financial
institution, typically a bank, and it enables the cardholder to borrow
funds from that institution, from that bank.
Cardholders agreed to pay the money back
with interest according to the institutions or the bank's terms.
Or it could be without interest if you pay
the full amount within the grace period that the credit card offers you.
So basically a credit card offers a line
of credit when you use it, when you make a purchase,
then that money is not immediately deducted from your checking account.
You have a grace period,
usually twenty five days to pay that amount back to the institution.
All right.
If those two things make sense, put in the comments below:
"Got it, Tiffany." So I know that you understand.
All right,
now that we know what a debit card is, let's talk about the pros of a debit card.
Debit cards will help you spend only money
that you actually have, hopefully, since when you are using your debit card,
that money is immediately taken out of your checking account.
That means you don't have any more money
to spend if you already spent everything in your checking account so it can help
you avoid debt because you won't have a line of credit to spend money on.
Now, that being said,
another approach of a debit card is to get a line of credit added to your debit card.
So if you did go over the balance in your
checking account, it would go to the line of credit and then you would have to pay
that off with any fees or any interest that may accumulate.
But usually this line of credit or the overdraft line of credit,
as it's also known, is around one hundred, to up to a thousand.
So it's not a huge amount, but it does provide that buffer for you.
When you are using a debit card,
if you accidentally went over the amount that's in your checking account. Another
pro of a debit card is that you have access to cash without a fee.
Usually if you use an ATM to get cash
from your debit card and you use an approved ATM so there's no extra charge
for using that ATM, then you can get access to cash without a fee.
Just make sure to check the approved ATMs for your debit cards.
But it does make it nice if you want to go to the bank but not wait in line.
There's usually an ATM and hopefully there's not a line there.
But you can just slide in your debit card and get cash out of your checking account.
Another pro of a debit card is that they do offer some fraud protection.
And we're going to talk about this later in the cons of debit cards.
But there is some fraud protection there.
So if someone was to use your debit card,
then most likely you would be able to receive that money back that they spent.
So it's better than just carrying cash.
And if someone were to steal your cash, it's completely gone.
Another pro of a debit card is that there is no annual fee with a debit card.
And if you're paying an annual fee with your debit card, I would get rid of it.
I would definitely switch institutions and get a debit card that does not charge
an annual fee because you should not be charged an annual fee.
All right,
let's talk about cons of debit cards and going back to that fraud protection,
when someone does use your debit card for a purchase,
it is quite the process to get that charge removed from your account.
They have to investigate that
that charge wasn't done by you.
And when they do that, they usually freeze your account so you
don't have access to your checking account.
And also, when that person swiped your
debit card, that money is immediately gone out of your checking account.
So you don't have access to that money.
And that can cause some problems if that's your only access to money,
especially if you had other payments that were going through and those payments
bounced because there's not enough money in your checking account because someone
else used your account without your permission.
And the key to this is to report this
fraud as soon as possible if it does happen to you.
I know a friend that this happened to and it was quite the mess.
They were trying to borrow money
from other people because they didn't have access to cash and the bank was taking
a long time to investigate this fraudulent charge.
So it was a
disaster, pretty much, so just be aware
that it can be quite the process and you may need access to cash elsewhere if you
do have a fraudulent charge on your accounts.
Another con of debit cards is that most
of them do not offer a reward or a point system.
So you don't earn cash back when you are using your debit card.
And I say most because some of them
actually do have a cash back reward system.
So take a look at your debit card and see if that is a possibility for you.
And going back to one of the pros
from earlier about having the money automatically or immediately deducted
from your checking account, this could be a con if you don't have
enough money in your checking account to cover everything that you do need.
Another con of a debit card is that it's
not building your credit when you use your debit card.
It's not reported to any of the credit bureaus.
So you're not building your credit as you're using your debit card.
And with a debit card,
there could be other fees that are involved, like maintenance fees or
overdraft fees or return check fees or even foreign transaction fees.
And all of these little fees can really add up over time.
So pay attention to all of the fees
that are associated with your debit card or with your checking account.
All right.
The last con that I want to mention about debit cards is that if you are only using
debit cards, some places will ask for a security deposit.
For example, if you're staying at a hotel
and they're worried you're going to ruin something at the hotel or if you are
renting a car and you are maybe going to get in a car accident or do some damage
to their car, they want some type of security deposit or security.
So usually they'll ask for a credit card and just put that number on file.
But if you only have a debit card, sometimes they will charge that security
deposit, but that money will come out of your checking account immediately.
So you need to make sure that you have
a buffer in there to cover any type of security deposit.
All right, we are going to move to credit cards.
So if I have forgotten anything about
debit cards, please put it in the comments below,
if you can think of other pros or cons for debit cards.
There are some perks with credit cards.
One of them is that some of them offer a sign up bonus.
So if you spend a certain amount within
a certain timeframe, they will give you a sign up bonus.
And I've seen sign up bonuses anywhere from around one hundred dollars to five
hundred dollars and it could be even more up to a thousand dollars or two thousand
dollars, depending on the credit card and your credit score,
if you are able to get approved for some of those credit cards.
So that is awesome. They are giving you free money if you are
already going to spend that certain amount within that certain time frame.
One of my favorite credit cards that I currently use is Capital One Quiksilver,
and they do offer a two hundred dollar sign up bonus when you spend five
hundred dollars within the first three months.
So if you're interested in that, if you are looking for a new credit card,
I will leave my referral link below and you can get their
sign up bonus.
And another perk that a lot of credit cards do is offer zero percent interest
for six months or for the first 12 months of you opening the card.
And Capital One Quiksilver also offers that, too.
So that is really nice, especially if you are planning to make a large purchase.
For example, I just had eye surgery done.
I had PRK, which is similar to Lasik and it was pretty expensive.
So I ended up opening a new credit card
and putting the charge on that credit card because it's offering zero percent
interest for the first year that I own that credit card.
And while I do have the money to pay for that, I can use that money elsewhere.
I could invest it, have my money working for me, and just pay the minimum payment
each month without getting charged interest.
And then I can pay that credit card off
in full before the zero percent interest goes away.
Another pro of credit cards is that most
of them do offer some sort of cashback or reward system.
And I think this is awesome because this
means every time you use your credit card, you are earning points on that credit
card, which means you can get a credit on your statement,
on your credit card balance later on, or you can even do gift cards.
Or if you like to travel,
then there are programs out there for receiving free sky miles.
I personally use my credit card for everything I possibly can.
I remember going to dinner with a group of friends and my friend had got out his
credit card to pay for dinner with his credit card.
And I had got out my debit card and he had
said to me, oh, I use my credit card for everything.
Why wouldn't I?
Because I earn points every time I use it.
So if I'm already going to spend this
money, why not spend it and get something back for it?
And I thought, oh yeah,
duh, why am I still using my debit card for these types of purchases when I can
use my credit card and get points for that, get that cash back.
And I know using a credit card for some
can become a problem, which we are going to talk about later
on when we talk about the cons of credit cards.
But for me, this works great to use my credit card as much as possible.
Also, credit cards offer a grace period
for you to pay back the amount that you've spent without charging any interest.
The way I use my credit cards is that I pay them off in full every month.
Unless I do have a zero percent interest
rate, then I may not pay them off in full every month, but otherwise I do.
I've never paid interest on any
of my credit cards and I am going to keep it that way.
So it's nice that you have a little bit of a buffer,
that twenty five days or so, depending on your credit cards,
to pay back that amount and still not be charged
any interest for it.
Another way of using credit cards is
that it can help build your credit, which is awesome.
If you are using your credit cards properly.
This can be really beneficial.
If they see that you are making payments
on time every month, that will continue to increase your credit score.
And if you want more details about this, I do have a video that I created.
How to increase your credit score?
So I will leave a link above and below
and in the description, you can check that out later on.
And just as a side note, you do not need to pay any interest
on your credit card in order to build your credit.
That is something that I have heard a lot before, and it is completely false.
Another benefit of credit cards is that they have a great fraud protection,
unlike with debit cards where that money is immediately gone.
Credit cards, once you dispute the transaction, then they will reverse that.
So you have a credit on your statement
for whatever the charge was, that fraudulent charge amount was.
So your account isn't frozen and they will send you a new credit card pretty quickly
because they want you to be using their credit card.
The credit card holder is not responsible for any disputed charges.
The law for credit card holders is much more forgiving than with debit cards.
Another great thing about credit cards is
that they offer warranty and purchase protection.
So if you purchase something and it falls
apart or something goes wrong with it, there is that warranty.
If you purchased it with your credit card
and usually they have a car insurance policy on the credit card.
So you don't need to get that extra insurance when you are renting a car.
One more pro for credit cards,
as some of them do not charge a foreign transaction fee.
If you are traveling internationally
a lot, you'll want a credit card that doesn't have a foreign transaction fee.
That means you can use your credit card overseas without an extra fee.
And that is another reason I like that Capital One Quicksilver card is
because they do not charge a foreign transaction fee.
All right. Let's talk about the cons of credit cards.
And I'm sure you can guess what the first con is.
People can rack up a lot of debt if they
are not using their credit cards responsibly.
Forty five point four percent
of families carry some sort of credit card debt.
That is almost half of the families.
That is a lot.
It's a very scary statistic.
We live in a world of instant
gratification where we want what we want and we want it now.
We don't want to wait for it.
So we will charge it on our credit card
even if we don't have the money to pay for it.
So you can imagine that the credit card debt is piling up and people are paying
way more for purchases than they ever thought they would because they're paying
so much in interest on their credit cards.
The second largest expense that people
have gone into credit card debt over is online purchases.
And like I mentioned in my last video, our world is becoming more and more
digital and people are purchasing a lot more things online.
And it can be really scary if they're
using their credit card and not having the money to pay it off every month.
So let's be very smart and pay off our credit cards in full every month.
And if we are tempted to do otherwise, then credit cards are not for you because
your credit card is essentially a short term loan.
If we're able to pay it off within
the grace period with that zero percent interest, then we're doing fine.
But if we are not able to do that,
then we will have to pay that super high interest rate on credit cards.
And if we're just making the minimum
payment each month, it can take years and years to pay off
credit cards because the higher the interest rate on the credit card,
the longer it will take to pay that credit card off, because that balance will
continue to accrue that interest every single month.
And if you want more information about
credit cards, I have a video for you, I believe, above and below.
And you can check that video out.
And I know I mentioned this as a pro, but if we don't use our credit cards
properly, then it can affect our credit score negatively.
If we are not making the payments that we
are supposed to be making on our credit cards, then our credit score will drop.
And the last con I want to mention is
that there can be fees associated with credit cards.
Some of them could charge an annual fee.
All of the credit cards that I currently have don't charge an annual fee.
And I realize that sometimes that annual fee is worth it if you are getting certain
perks or bonuses that are going to be relevant to you.
But for the most part, I would make sure your credit card does
not have an annual fee. And double check that there isn't a foreign transaction
fee because not all credit cards offer zero percent transaction fee.
There's usually a cash advance fee if you
are using your credit card to get cash out of the ATM.
And, of course, there's going to be late payment fees or returned payment fees.
And what would I suggest?
I would suggest that if you can responsibly use credit cards,
and that means paying them off in full every single month, unless they do have
a zero percent interest rate for that introductory period.
But as long as you're going to pay them off in full before you get charged
interest, then I would highly recommend using credit cards.
And if you want to know all of the credit cards that I use, I have a video for you.
I will leave a link above and below in the description.
But if you are not able to handle credit
cards responsibly, then just stick with your debit card or even cash,
if you are getting overdraft fees on your
checking account. Comment below and tell me what your favorite credit card is,
if you do use credit cards and if you are
thinking you just need to get a better handle on your finances,
I love using Personal Capital.
It's a completely free app that hooks all of your financial institutions to it so
that you can see all of your money in one place.
So if you're interested in something like that, I will leave my referral link below
and you can use that to get a free 20 dollar Amazon gift card.
And if you found this video helpful, please hit the like button and share it
with someone else who needs to hear about debit cards versus credit cards.
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And don't forget to check out my other videos that I mentioned, or even check out
these videos over here on the sides of the screen.
Thanks so much for watching.
I'll see you in the next video.