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BW FINANCE: Credit or Debit?

By Black Westchester Financial Columnist Rashad Bilal

credit-v-debit-scaleOne of the wonderful privileges we enjoy as Americans is the luxury of choice. A bounty of exotic foods is available in any supermarket; a dizzying variety of clothing awaits us in every mall. Students have thousands of colleges, universities, trade schools and other institutions of higher learning to choose from. Once they’ve picked a school, they have dozens of fields of study available within it. Upon graduation, they are free to pursue virtually any job opportunity that interests them, in any city. From the homes Americans live in and the cars we drive, to the coffee we order on the way to work, our lives are full of choices.

But choice is a double-edged sword. As long as the government or parents or bosses tell us what to do, life is simply a matter of following directions. But with freedom comes a lot of responsibility. To be sure you’re making the best choices, you have to educate yourself!

rules-debit-credit-22112699Take, for example, your payment options. If you’re like most Americans, you have a wallet full of plastic. Every time you make a purchase or pay a bill, you have many choices. Cash, check, bank card, store card? Which option do you pick? Do you use the same option out of habit, select one at random, or do you really understand the differences well enough to make the best choice?

4b5404_f6dc1d1394994bd09e2a6330fe88df02-mv1Let’s look at the differences between credit and debit cards. The cards themselves look almost identical physically, with the cardholder’s name, 16-digit number, expiration date, logo of the issuing bank or financial institution and the logo of the Credit Card association. The debit card probably has the addition of the word “debit” somewhere on the front. In a store, they’re both swiped in the same manner, using the same machine, but they’re processed differently.

  • Debit card transactions are withdrawn instantly from the cardholder’s bank account.
  • Credit card transactions are billed to the cardholder to be paid at a later date.

What are some of the features of debit cards?

  • They can be used like cash, without having to carry cash around.
  • They can often be used in stores to make cash withdrawals, usually without a service charge.
  • They can be used in ATM machines to withdraw cash (or to make deposits).
  • They limit your spending to what you have available in your checking account.
  • They don’t ordinarily have yearly fees associated with them, but they may be fees applied for the use of the card at certain financial institutions or an increased price for goods sold (e.g. higher price per gallon to fill a gas tank when using credit or debit cards).

What are some of the features of credit cards?

  • They give the cardholder a line of credit which can be used for purchases or cash advances.
  • They may charge interest on whatever balance is not paid by a specified due date.
  • They may charge a yearly fee.
  • They usually offer more protection than a debit card if unauthorized purchases are made.
  • They may offer no-cost benefits such as enhanced product warranties, insurance, and loss/damage protection on new purchases.
  • They may offer reward points exchangeable for cash, gift certificates, products, or airline tickets.
  • They may be required for deposits on certain services, notably car rentals and hotels.

holiday-credit-or-debitSo how do you decide which card to use when about to make a purchase? If you have the willpower not to overspend, and you pay off the entire balance before any interest fees accrue, a credit card may be your best bet. Take advantage of the protection, benefits and reward points! A credit card may also be a lifesaver in an emergency. Be careful, however. Credit card companies understand human nature; most people tend to overspend when payment isn’t expected till “later.” If you’re on a tight budget, it may be wiser to stick to the debit card and pay as you go.

A note about your credit rating: Credit cards can help you build good credit if you use them responsibly. On-time payments can help boost your credit rating.

  • If you do need to carry balances on your credit cards, pay the minimum balances on each one, and put as much extra as you can afford on the card charging the highest interest rate.
  • Check your monthly bills for accuracy and report discrepancies immediately.
  • If you are charged for a late payment, call customer service and ask if the charge might be removed. Sometimes all it takes is a call.
  • If you are a good customer, call customer service periodically to ask for a lower interest rate. Again, sometimes all it takes is a call.

Giving Credit for Good Choices
Used wisely, “plastic” cards can make lives easier. Consider making a choice to become more informed on your credit situation and how small adjustments in spending can help you achieve your long-term financial vision. Guidance from a qualified financial professional can help you think about the best ways to plan for the future and manage your money.

Provided by Rashad Bilal, a financial representative with The Bilal Group LLC, who represents MassMutual and other companies; courtesy of MassMutual
© 2014 Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001


About Rashad Bilal (7 Articles)
Rashad is a financial advisor and partner at the Bilal Group LLC. His primary expertise is in the areas of protection, wealth accumulation, retirement planning, estate planning and business planning. Rashad strives to offer a wide variety of solutions to meet the financial needs of both families and businesses. The Bilal Group, LLC is a financial services and wealth management firm that has been servicing hundreds of professionals and business owners nationwide for over 35 years.
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