"Credit or debit?" It's a question many of us are asked almost every day, but do you know the differences or advantages of using either?
If you are receiving disability benefits and returning to work or looking for a job for the first time, it's important to understand what you can do - big things and small - to manage your money. Consider the following the next time you use your credit or debit card.
When using a credit card, it's important to understand that:
• Buying with credit is a loan. You can use a credit card to buy things and pay for them over time. But don't forget that buying with credit is a loan -- you have to pay the money back. And if you don't pay your bill on time or in full when it's due, you will owe a finance charge. The finance charge depends in part on your outstanding balance and the annual percentage rate (APR).
If you use a credit card it's important to keep track of your debt. Are you coping with lots of debt? Read this blog post for tips on what you can do to find debt relief.
• If you choose to pay the minimum balance when your credit card bill comes, you will also owe interest. Credit cards charge you money when you do not pay your balance in full when your bill comes. Watch this video or read the transcript for a better understanding of how minimum payments work.
• Buying with credit can help you build credit. An advantage of using a credit card is it can help you build your credit history should you need to make a larger purchase or get approved for a loan in the future. Credit is earned by paying your bills on time. Learn more about your credit score and how to get free copies of your credit reports here.
For more information about credit cards, visit the Consumer Financial Protection Bureau Q&A on credit cards.
Debit cards look like credit cards, but are linked to your bank account. Debit cards can be used in two ways: at an Automated Teller Machine (more commonly known as ATM) to withdraw cash from your bank account, or for retail purchases at a store or restaurant or online.
When using your debit card, remember that:
• Using your debit card takes money out of your bank account right away, so make sure you have the money in your account to pay. If you do not have enough money in your account, your bank may "loan" the money and pay the overage. However they may charge you up to $35 for this courtesy, even if the dollar amount the bank covered was small. Read more about overdrafts and debit card purchases here.
• Some ATMs charge a fee if you are not a member of the ATM network or are making a transaction at a remote location. Check with your bank for more information about ATM fees and locations.
• Your bank may charge you a fee for using your debit card to make retail purchases, or when you enter your PIN or sign for the purchase. Check with your bank about your debit card policies.
• When you use a debit card, federal law also does not give you the right to stop payment. You must resolve the problem with the seller. This means debit cards don't offer as much protection against fraudulent use, or if your card is lost or stolen. Read more about ways to protect yourself from financial fraud online.
Is there a financial topic you want to learn more about from the Choose Work blog in 2015? Post your thoughts in the comments below!
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