The Surprising Reason Your Card Choice Can Make or Break Your Family’s Financial Wellness

Josh L
6 min readMay 4, 2023
Photo by Avery Evans on Unsplash

Debit and credit cards are financial tools that can help you achieve financial success. While they look and sound similar, there are some key differences between the two. After reading this guide, you’ll be able to choose the perfect card for your financial situation.

Debit cards withdraw from your checking account. When you open a bank account, you deposit cash. This allows your card to pull money from the account to make purchases. For example, let’s say you are at the grocery store checking out. Your debit card communicates with the store that you have the cash available in your account. If you have $1,000 in your account and your grocery bill comes out to $100, your transaction will go through. This is because your cash covers the amount owed. The money leaves your bank account right away. When you don’t have enough cash in your account. your transaction will decline. This is because you don’t have enough cash in your bank account. Some banks offer “overdraft protection.” An overdraft is when you use your debit card to make a purchase when you don’t have enough cash in the account. If you have overdraft protection, your transaction will go through even if there is not enough cash to cover it. You pay the bank a fee for this service plus the price of whatever you bought.

Credit cards work in a different way. There is no cash tied to your credit card. When you use your credit card at the grocery store, you don’t use your money to pay. Instead, you use credit. This means you are borrowing the money to pay now with the promise of paying it back later. When you use a credit card, the credit card company is trusting you to pay them back. Your credit score is an evaluation of how trustworthy you are. The higher your credit score, the less risky you are. The lower your credit score, the higher risk you are to lenders. Your credit card company totals up the amount you owe every month. On the due date, you have a minimum amount to pay. If you pay the minimum, you will build your credit score and avoid late fees. You can pay the balance in full to avoid paying any interest. Credit cards have a limit on the amount you can borrow. For example, you may only be able to borrow $ 10,000 at a time before you need to make a payment. Once you make a payment, you can use your card again. If you have a $10,000 dollar limit on your credit card and pay $8,000 to the credit card company, you still owe $2,000. You can choose to pay that off completely first, or you can use the $8,000 in credit you opened up again. Credit cards also have rewards when you use them. Rewards are cash they give you that build up over time.

Credit cards come in different types. The most common are standard, secured, and premium. Standard and premium credit cards work in the exact way described above. The only difference is in the rewards program. Standard credit cards have rewards for cash back on gift cards and Amazon shopping. Premium credit cards have access to special events and more high-end experiences. the trade-off is they have higher annual fees. Secured credit cards are different. They help someone with no or poor credit increase their credit score. With a secured credit card, you give a certain amount of cash to the credit card company as collateral. Most credit card companies use $200. You pay $200 to get access to the card, and your limit is $200. After a certain period of time of making payments on time, you get your $200 back. Your limit increases once you prove you are less risky. This is a great option for younger people to build credit or for people who want to increase their credit score.

What are the pros and cons of each? Let’s start with the pros of a debit card. Debit cards are easier to budget with, don’t put you in debt, and are much easier to understand. They are simple compared to credit cards. If you have the cash, you can buy anything. If you don’t have the cash you can’t buy it. Credit cards can get you in trouble if you aren’t careful with your spending. It’s easy to go into debt when you can buy what you want now and figure out how to pay for it later. Another pro of a debit card is that anyone can get one. If you have no or poor credit, you may not be able to get approved for a credit card.

Credit cards have pros too. The biggest is that you have access to money you don’t have. This can come in handy if you need cash fast but don’t have it in your bank account. Your credit card will allow you to spend money and pay it off over time. Another pro is paying on time will increase your credit score. This is important because a higher credit score means paying less on interest. It also means you will have an easier time buying a house or getting a personal loan. Another pro to a credit card is the rewards. Earning cash back adds up fast.

One con of the debit card is that it doesn’t build your credit score. Credit is important if you want to buy a house or take out any kind of loan. Having good credit gets you lower interest rates on houses, cars, and more. Another drawback of debit cards is that they don’t provide quick access to cash you don’t have. Credit cards can pay for emergencies when you don’t have the money yourself.

A con for credit cards is that it’s easy to overspend. You can find yourself spending too much on wants instead of needs. This can leave you with a high credit card bill that you are paying off for years. It can increase your debt level and cause a lot of stress. Another con is that some credit cards have annual fees and high-interest rates. Debit cards never have annual fees or interest rates, since you are not borrowing with a debit card.

How can you choose between the two? The first thing to consider is your spending habits. If you tend to spend money without much thought, you may want to avoid credit cards. If you manage your money the right way and feel in control of your finances, a credit card can give you more options. A second thing to consider is your credit score. If you are trying to build credit, a credit card can help you. If your credit score is already in great condition, a debit card may make more sense. Opening up too many lines of credit can hurt your credit score. If it’s already high, you may not need another credit card. A third thing to consider is your reward preferences. If you are looking to make some money back on purchases, credit cards can help you. If you don’t care about rewards and want something simple, stick with the debit cards.

Now you know how debit cards and credit cards work. You know the differences and similarities, as well as some pros and cons for each. Both are financial tools that can help you if used in the right way. Most people have both and use them in certain situations. As long as you are in control of your money and not the other way around, you will be in good shape no what card you use.