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8 Tips for Using Credit and Debit Cards

Okay, so having a credit card helps build your personal credit (more on that later). And a debit card is safer and easier than carrying cash. But these cards can cause HUGE problems if managed poorly. Here's what to do in order to avoid drowning in debt.

Credit Cards

How They Work

Swipe, pay no money up front, and receive a bill for everything you've charged later on.

What to Watch

Interest rates. If don't pay your entire bill, your remaining balance will gain interest. ($100 remaining with a 14% interest rate means you now owe $114.)
Credit history. Be on top of monthly payments. You build up a solid credit history that will help you land big purchases like a car or a house.
Rewards. Cards often have rewards (Starbucks, airlines, gas, hotels, cash back, etc.). If you pay your bills on time, you can save money (and earn money) just by using your credit card.

Tips for Use

Use only one or two cards.
Keep track of what you charge.
Save for big purchases (iPad anyone?) instead of putting them on your card.
If spending is getting out of control, leave the card at home. (We put ours in the freezer.)

Debit Cards

How They Work

Swipe and the money is taken immediately from your bank account. A debit card is like cash—you can only spend what you have at the moment

What to Watch

Overdraft fees. When you buy something that is more than the available balance in your account, many banks will charge a fee to cover the cost of your purchase.
Automatic payments. No late fees because the purchase is taken from your account. However, you won’t build a credit history either.

Tips for Use

Write down and keep track of how much is in your account.
Overdrafting = more fees. Don't use your card when your account balance is low.
Compare your monthly bank statement to what you wrote down you spent (sometimes banks make mistakes).
Try to use only your bank's ATMs. Other banks will charge you a service charge for withdrawing money with your debit card.