While they are both plastic and can be used for payments, credit cards and debit cards have a number of important differences which can make a big difference to your finances. Dawn Lyons, vice president and branch manager at Hills Bank, says it’s a good idea to have both a debit card and a credit card in your wallet. Here’s why.
Basics of Debit and Credit Cards
“A debit card is directly linked to your current account, so when you make a purchase, those funds come straight out of your balance, ”Lyons said. “However, a credit card has a set limit, which is based on factors such as your credit score and your annual income.”
This credit limit could be more than the amount of money you have available at any given time. But you shouldn’t use it as an excuse to spend as much as you want. “Each month you’ll receive an invoice to pay off the entire credit card or make a partial payment – but it’s important to understand that if you don’t pay your entire bill, you’ll earn interest on the unpaid balance. . Lyon says. “It can add up to a lot of debt over time.”
Get money at ATMs
Debit cards are designed to get cash from a variety of ATMs with a small fee or even no charge when used inside certain ATM networks. But Lyons cautions against using credit cards at ATMs if not necessary.
“ATMs generally treat credit card withdrawals as a ‘cash advance’, which can result in significant fees.” She said. “You will likely end up paying more than the money you took out to pay your bill.”
Advantages of the credit card
Lyons recommends having a credit card for a number of reasons. “It’s a great way to start building your credit, as well as protecting your money, because a credit card isn’t directly linked to your bank account,” she said. “Some cards may also offer rewards in the form of cash back or ‘points’, which can be used for travel, gifts, etc. “
The key to creating credit with a credit card is to use it responsibly, Lyons explained. “If you pay off your balance each month and keep your overall credit usage low – that’s the percentage of your credit limit that you use in each statement cycle – you can improve your credit score for better credit scores. credit offers in the future, ”she said. “But if you don’t pay off your credit cards, you’ll not only have to pay more interest; this can lower your credit score.
On the flip side, Lyons added, using a debit card for your purchases won’t impact your credit score, for better or worse.
Do I have to have both a debit card and a credit card?
When you decide to Apply for a credit card, consider things like annual fees (if applicable), interest rate, potential credit card benefits, and most importantly, your spending habits. “Do you have the ability to pay off your credit card balance every month or do you see yourself carrying a balance?” »Said Lyon. “Be honest with yourself to make the right decision.”
Deciding between a credit card and a debit card doesn’t have to be one or the other, of course. Many people choose to use a debit card for everyday purchases and cash withdrawals, while using a credit card for large bills in order to pay them off over time and save money or money. rewards.
If you’re trying to find the best option for your spending, Lyons recommends that you stop by a local financial institution. “At Hills Bank, we help answer everyone’s questions about cards to help them find a solution that meets their needs,” she said. “Whether you are a customer or not, do not hesitate to stop by near you!
Hills Bank FDIC Member