Credit Debit Cards Advantages and Disadvantages What is

Credit & Debit Cards: Advantages and Disadvantages What is credit? What is the difference between debit and credit cards? What are advantages and disadvantages of credit cards?

VOCAB TO KNOW! Credit: goods, services, and/or money received in exchange for a promise to pay back a definite sum of money at a future date Creditor: A person or company to whom a debt is owed Debtor: A person or company that owes a debt (has a liability) Debt (payments)-to-income ratio: compares an individual’s debt payment to his or her overall income Helps creditors/lenders determine an individual’s ability to manage monthly payment and repay debts

Balance transfer: the outstanding balance of one credit card (or several credit cards) is moved to another credit card account. This is often done by consumers looking for a lower interest rate. Usually has a fee. Cash advance: a cash loan from a credit card, using an ATM, a bank withdrawal or "convenience" checks. Finance charge: total cost of borrowing, including interest and fees, expressed in a dollar amount Grace period: time during which you are allowed to pay your credit card bill without having to pay interest on new purchases; usually 21 days.

What’s the difference? APR vs APY APR is the annual percentage rate, the interest rate charged on credit card balances; rate is applied each month (simple interest) APY is the annual percentage yield, or interest rates considering compounding interest Credit vs Debit cards Credit card—funds are borrowed from a credit lender (company, bank) and acts like a loan. Interest rates and fees are charged if payments are not made on time/in full Debit card—funds come directly out of your account rather than borrowed; can overdraw your account! *both have similar functions and can incur fees*

Debit Card Plastic card that looks like a credit card Electronically connected to a bank account Money is automatically taken from the bank account when purchases are made Requires a PIN (personal identification number) Confirms the user is authorized to access the account To Use A Debit Card Swipe it through the store machine or put into an ATM Enter the PIN Complete transaction

Pros and Cons - Debit Cards Pros Convenient Small Can be used like a credit card Allows a person to carry less cash Does not allow overspending Cons Can lose track of balance if transactions are not written down Opens checking account up to credit fraud Others can gain access to the account if the card is lost and PIN is known

Debit & Credit Card Account Number—Links all purchases made with the card to a designated bank account Expiration Date— The debit card is valid and may be used until this date Cardholder’s Name— The cardholder’s full name is written out and displayed. Magnetic Strip— When the debit card is swiped, the magnetic strip automatically withdraws funds from the cardholder’s account.

Debit & Credit Card Authorized Signature— Sign in the signature box on the back of the debit card to authorize payments Should also write, “See ID” in the signature box Ensures the person using the card is authorized to do so Verification Number—This three digit code is located on the back of the card in the signature area Help ensure the card is in the cardholder’s possession when making purchases Prevents unauthorized use

Advantages 1. Convenience Don’t have to carry cash with you to pay for purchases Safer & easier alternative to cash Can report missing/stolen card to the card company, who will stop accepting any charges on your card and you won't be charged for purchases made by someone else. If you make a purchase with a credit card and do not get what you paid for, the credit card company will help you solve your problem. 2. Emergency payments If you have an emergency but have no cash on hand, you can use your credit card (responsibly). Allows for better flexibility on payments for that item/purchase.

Advantages 3. Affects credit score If you use your card responsibly, you can begin to build a good credit rating for yourself. Later in life, when you need a loan, a lender will want proof that you pay your debts. A good credit card history will help you get your loan. A poor credit history will work against you. Employers look at your credit history, too. 4. Short-term & validation of payments Depending on when you make your purchase and when your monthly bill is due, you can get extra time to save up and pay for what you just charged. If you can pay off the bill ENTIRELY, you are really making the credit card work for you. Some companies only take credit card payments, and you must show your card as a form of ID. Safety measures in purchasing

Disadvantages 1. Convenience Credit cards do get stolen—it is your responsibility to keep a record of payments and check your invoice Need to make payments on time and in full when/if possible You may intend to always pay your bill in full and on time. However, most of us carry a balance from month to month. 2. Emergency payments A credit card is not “free” money—you still have to pay back ALL of the money you owe; this can include interest payments. There is a potential to create overwhelming debt that you cannot afford to repay

Disadvantages 3. Affects credit score If you use your card irresponsibly, you can create damage to your credit rating and hurt any future large-item purchases Cash advances can work for or against you—be careful! cannot take a cash advance for the full amount of available credit. interest rate is often significantly higher A transaction fee is usually charged. No grace period for cash advances. 4. Short-term & validation of payments Using credit can impact your spending power, as it can reduce available credit, and can impact future spending based on any interest owed A court can order garnishment of payments, or require your employer to pay part of your wages to the creditor until debt is paid off So much for “short-term” payments!