Credit vs Debit Card – What’s the Difference?💳

– In this episode of Office Hours, we're gonna talk some financial literacy basics What is the difference between a credit card and a debit card? Let's get right at it

The most important difference to note is that a debit card is money that you have, and a credit card is money that you don't have I think that's the simplest and the easiest way to explain those But if you wanna do a little bit more nerdy, you have to go back to the double entry that bookkeepers use to segregate assets and liabilities Now, the relationship that you need to understand with a particular debit card is the relationship between the bank that holds your money, and the vendor where you spend it, right? Because the bank is looking at your account as a liability It's not their money, it's your money, and so decreases to that balance is going to look like a debit, a deduction, and that is what bookkeepers would use to show deductions in liabilities is debits

With a credit card, it's a little different That is the relationship between you and a credit card company Now, I know credit card companies and banks are pretty much synonymous nowadays, but bear with me on this analogy in that the credit card company is going to see any purchases, and swipes you made, as credits, increasing the amount of money that you owe them, right? So these credits would increase a liability, whereas the example before, the bank's liabilities are being decreased by debits So that is the whole notion around the nomenclature, if you will, for a credit and a debit card Now, whether you would wanna have one or the other kinda depends on you

For me, I'm the kinda conservative guy, that I don't always want direct access to my bank account in a particular transaction, so I'll swipe my credit card and then pay it off at the end of the month But it does really depend on you, because you gotta have a level of comfort with how you spend your money, and where you spend your money, and what account or types of accounts do you use to fund that particular purchase Another question you may have is what happens when you run your debit card as a credit You know, often, you're at the supermarket line, or wherever you're at, and then vendor may ask you, do you wanna run this as a credit or debit, and you're swiping your debit card What this means is really nothing to you

It may affect how long it takes for the funds to finally draft out of your account, but nowadays it's pretty much next-day, sometimes even the same day, depending on the time of the day that you've done the purchase, but really, what the impact is, is behind the scenes, it's to the vendor It costs the vendor a little bit more to process a credit transaction through the interchange fees that they have to use, whether it be American Express, Discover, Mastercard, whatnot, Visa Those costs are a little bit higher than a debit, which is processed a little differently, so the cost that is borne by the vendor is really the reason why they ask that particular question Last but not least, you may ask, is it safer to use a debit versus a credit card? Ah, it's all relative nowadays, you know Everything is so hackable nowadays, and you know, cyber theft is one of those things that you have to really be cognizant of, and so I think it goes back to your personal preference about what you want to expose, because I would say the safest bet would be to have a service that monitors both, or all, of your social security, your credit card numbers, and your bank accounts, so that you have some type of protection in that way

There's no 100% guarantee that you will not be a victim of identity theft What I will say, though, about credit card companies, is that's not recourse debt, right? They cannot collateralize your assets, it's usually non-secure debt, that they cannot collateralize your assets in order to pay the loan, or pay the debt So that is a positive in some cases, I guess, if you don't believe in paying your debts, but if you do believe in paying your debts, which most of you do, I think the way to go is to have some type of insurance, some type of protection on your purchases through an identity theft protection service, like Identity Guard or LifeLock, they all offer these type of services, where you can have your socials, your bank accounts, and your credit cards monitored for the various uses that you'll be using those things for Thanks for watching this episode of Office Hours Please leave me a thumbs-up or a comment below

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