Skillful Use of Credit Cards & Debit Cards

Posted On 8 May 2020

Last updated on April 9th, 2024

I remember getting my first debit card when I was just starting college. At the time, I was 18. It was less than a year later that I got my first credit card, a Discover Card. Over the years I have used both credit cards and debit cards without giving much thought to either of them. Yes, I knew the basics of how they worked – Credit cards allow me to spend money I don’t have and then when the bill comes, that money must be paid back. A debit card on the other hand completes the transaction by simply takes money out of my checking account.

Now, I have many, many years of experience using (and abusing) credit cards and debit cards. I have been told that experience is the best teacher, and it is a great teacher. An even better teacher is other people’s experience because it saves you time and money. Let me now share some of what I have learned about cards.

Aren’t Credit Cards Dangerous?

Yes, credit cards are dangerous. Life is dangerous, too! Credit cards are merely tools that you can use to your benefit or detriment. Chain saws, knives, and fire are dangerous, too, but when used safely they make our lives better.

Cards are only dangerous when the user treats the available credit as though it is money given to them. If you keep in mind that any money spent on a credit card must be paid back, you will be in good shape.

A simple test to see if you are using your cards responsibly, is by looking at the account balance. If the card is not getting paid off every month, a change needs to be made. An exception is large, planned purchases. For example, we used a cash-back card to pay for a new roof on our house. We purchased the materials with a cash-back card. Then, we transferred the balance to a 0% interest card and paid that card off within the 12 month period.

Credit Cards Are Safer

One day I was watching some YouTube videos, and I happened to have one come up where Frank Abagnale was giving a talk. For those who don’t recognize the name, Frank Abagnale is the person that the movie Catch Me If You Can was made about. I would recommend the movie if you haven’t seen it!

In the video, he was talking about security. One of the topics he covered was payment cards. When something is purchased with a debit card, that money comes directly out of your account. If there is a dispute about the charge, you must fight to get your money back! A credit card on the other hand is safer because it is the bank’s money that you are spending. Should a dispute arise, the bank (or card issuer) must get the money from whoever the dispute is against.

Build Credit

Using a credit card regularly and paying it regularly will help you raise your credit score. Besides paying your credit card on time (and more than the minimum payment), there are other card factors that affect your credit score as well. The number of accounts, the longevity of the accounts, and the amount of used to available credit you have.

Having a good credit score is beneficial to you. What does a credit score really mean? Your credit score is simply the financial systems’ analysis of how likely you will pay back a loan. It has nothing to do with how much money you have. It is possible for someone to have a good deal of money, yet because they pay cash for everything, they don’t have much of a credit score.

A good credit score can save you money. Utility and phone companies may not ask you for a deposit to set up a new service. You can get a lower mortgage or car loan rate. It can even affect insurance rates or in some cases employment eligibility.

Earn Rewards

When you use a rewards credit card, you can earn while you spend. My personal preference is using a cash-back card, because it can be used for anything, including travel. Every card has their own rewards structure. Do your research and figure out what card would work best for you.

Purchasing everything you need with a cash-back card can earn you a good deal of money! A note of caution: Pay the card off every month, or you will spend more in interest charge than you receive as a reward. Credit companies know most people will eventually not pay their balance, and the company will make the money. I previously wrote about learning the Rules of the Game, and to get the most out of your credit cards, you must know the rules the company has set out.

Limit the Number of Cards

Variety is a good thing. I recommend having both a MasterCard and a Visa. Some places will only accept one and not the other. If you have both, you are good to go! Also, if one of your cards should stop working, you have another option.

While it is good to have options, the results tend to be better if you Focus Your Rewards Cards. I go into more detail on the topic in that previous post. Too many cards can have a negative affect on your credit score, and do you really need a lot of cards? The recommendation I have seen is 2-3 personal credit cards is the sweet spot. I don’t know your situation, so this is just a general number.

Use Both Types of Cards

Both types of cards have their benefits, and different purposes. Just like different knives have different uses, the same applies to cards. By knowing the differences in the cards, you can use them properly, too.

I only use the debit card at the bank or ATM. These are transactions that would not earn me any rewards for using a credit card. Never get the cash from a credit card at an ATM. The rate is often higher, and they may charge a fee for getting the cash. Just stick to using your debit card in these situations.

For all purchases, I use a credit card because of all the benefits connected to the cards. They are safer and I can earn rewards for purchasing the things I need to purchase anyway. I hope this post helps you get the most out of your credit and debit cards.