What's the easiest way to compare debit vs credit?

Once you understand the fundamentals of what it means to have/use credit, here’s the simplest way to understand what it means to use a credit card vs a debit card for life’s everyday spend.

Debit Card let’s call it DC

Credit Card let’s call it CC

The 101:

The default card that comes with a bank checking account. Once you begin depositing money in your checking account, swiping your DC in your real world transactions means spending money you have in your account today.

To use a CC is to borrow money. Super official from a bank (vs from mom), that you (must) 100% pay back 30 days later...unless you’re down to pay back MORE $ than you spent because of crazy interest ← not the MoneyGirls way.

Benefits?

Easier than scrambling for cash because of better tracking of how much you spend (since you can see your spend in your account). Allows your parents or employer to pay you more easily.

Credit history (helpful when you’re ready to make a big purchase eg. car or house and need a big loan). Some CCs also give you cash back or rewards. Caveat: getting one before you’re responsible about paying it off is 100% worse than not having one.

Which should I get first?

Practice swiping your DC first. Because you see your account go down, you’ll internalize what it feels like to spend money. It won’t feel like magic $ that’s just there. Get practice checking your account and knowing how much you have to spend.

By the time you get a CC, you likely already have a bank account (that came with a DC) from which you can easily pay your credit card bills. Again, super important to know how much you have for purchases before charging something to your CC.

Is it free?

Yes, as long as you: 1. Stay above any minimum balance required by the bank account connected to your DC 2. Don’t spend more than you have. Check that your bank will REJECT your attempt to spend more than what’s in your account - good control mechanism! Otherwise, banks LET you spend more (they front you the extra $) but charge you a huge overdraft fee of $25+!

Some fancy cards (full of rewards) have an annual fee of $150 or even $550. It may be worth it to a 40yo fancy person who travels a ton. We assume you’re an on-your-way-to-fancy-but-not-quite-there-yet regular person. Start with a free card.

Spending limit?

Whatever you have in your bank account.

Whatever the bank set as the monthly limit on your CC. (example: one of the MoneyGirls’ founders’ first CC had a limit of $500/month since she had no credit history at the time)

Do I have to pay anyone back?

No. Was always your own money.

Yes. The bank. Credit card bills are monthly (called “billing period”), so everything you’ve charged to your card within that period is due in one go. Before you pay it you’re “carrying a balance” and that’s cool WITHIN a billing period, as long as you pay it off by the due date. But if you “carry a balance” from one period INTO another, you are charged ungodly interest.