Skip to main content

Know the Difference

While debit cards and credit cards look almost identical, the way they work is totally different.

When a debit card is used, the amount you spend comes directly out of your checking account.  A debit card works more like cash in the sense that you can only spend what you have in the account. Debit cards have a PIN, but most places CAN run it like a credit card and get your signature instead–you just have to ask.

When a purchase is made with a credit card, you are borrowing the money from your bank and will have to pay a high amount of interest on that money if the money is not repaid within a certain time. A credit card also allows you to spend more than you have available, thus automatically creating a loan to your bank. These loans carry a high interest–it can cost you A LOT to borrow that money. Credit cards do not have PINs.

 Let’s say you use a regular credit card to buy a new TV for $1000. Your payment will be about $20 a month, but the INTEREST on that will be about $15–the "cost" of "borrowing" the money from the bank that gave you the credit card–which leaves only $5 to go to paying off the original $1000 cost of the TV. Because of the way credit cards work, making the minimum payment each month will guarantee that you will be paying interest on top of interest. It will take you more than 17 years to pay off that TV, and it will cost you over $4000.  I don’t know about you, but I’d like to keep that extra three grand. 

If you do not know which of your cards is which, find out. Now, get your scissors out and bring them with you to next week's blog.

Comments

Post a Comment

Popular posts from this blog

Stack or Roll?

Last week I gave instructions to put your debts in order from the smallest balance owed to the largest balance owed. And, it is in this order that I intend to instruct you how to pay them off–you will pay the smallest balance first, and when that debt is paid in full, you combine that payment (that you are no longer paying because you are DONE with it) with the payment of the second smallest debt….you roll the first payment into the second debt. This allows payments to get larger and larger as you pay off creditors and is called debt snowballing . This system works for most people, is by far the easiest to understand, and allows you to see quick progress which is most likely to keep people motivated. But I would be remiss if I didn’t tell you there is another way to organize your debt, and that is by the percentage of interest you are paying–the creditor with the highest interest rate goes at the top of the pile, and you pay off that creditor first. When that debt is paid off, yo...
1 comment
Read more

Say "Ahh..."

I cannot believe that in all my months of blogging that I have not used–I checked–one of my most favorite quotes of all time. Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure.” The gist of it is that it’s easier and cheaper to fix something small than it is once it grows too large. It sounds like Franklin’s original intent might have been health-related (think cancer), but it can be applied to anything that needs maintenance (think car problems). Your house is no different. Side note; if you are renting, you can thank your lucky stars at this point. Renters are not responsible for regular home maintenance. However, this is also one thing that potential home-owners don’t usually think about when they are getting “house-hungry” and “throwing their money away on rent.” If you have too much debt when you try to buy a home, you are probably asking for more financial trouble. Now, let us return to the subject at hand. Why this time of year? You ask? Well, t...
Post a Comment
Read more

Gifts that Matter

When I think about my childhood, there are a few events (some good, some not so good) that really stand out. These specific incidents made big impacts on me, so they really stuck. I bet you can say the same thing. These encounters, good and bad, help shape who we are. As parents, it is our job to teach our children to be honest, upstanding, contributing members of society. This does not happen by accident. Part of this process involves the experiences we give our children–we can orchestrate PEAK moments for our families that will leave lasting impressions on young, impressionable minds. What is a PEAK moment? According to de Jager Meezenbroek, Garssen, van den Berg, van Dierendonck, Visser, and Schaufeli in the Journal of Religion and Health , “Peak experiences are often described as transcendent moments of pure joy and elation. These are moments that stand out from everyday events.” Christmas offers an EXCELLENT opportunity to offer experiences that can become “PEAK moments” in ...
Post a Comment
Read more