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generation money
Personal finance
December 5, 2013

Generation Money: Credit vs. Debit


Maggie: It is shopping season! Time to get those gifts. But if you are not into carrying around a whole bunch of money, Shelby Holliday is here, breaking down the best ways to use  credit or debit cards in today’s Generation Money.

Shelby: A big question for holiday shoppers is ‘paper or plastic?’ Well, if you end up going with plastic, it is important to know that not all cards are created equal. A lot of shoppers have a credit and a debit card, but if you don’t know the difference between the two, it could end up costing you.

Do you know the difference between debit and credit?

Teen: Not really.

Teen: Not really.

Teen: Not really.

Teen: Debit, it asks for your pin number and credit card asks for your zip code.

Shelby: Okay, that is correct. But there are other big differences that can make, well, a big difference.

Teen: Well, I’m pretty sure that debit, you have money in your account and credit is you are just borrowing. Maybe? Yeah, borrowing.

Shelby: There we go! One of the most important things for you to know is that debit cards use money that is already in your bank account. Whereas credit cards let you borrow money that you will have to pay back later, kind of like a loan from the bank. Both types of cards can be safer than carrying cash because if the cards are lost or stolen, you can cancel them right away and you usually won’t be held responsible for fraudulent charges. If you lose the cash, it is probably gone for good.

So which kind of card is better? Well, it depends on the spender.

So which do you prefer?

Brenna: Debit.

Shelby: Debit? Why?

Brenna: Because then you don’t go into debt.

Shelby: Debit cards can be safer since you can only use the money you already have. With credit cards, spending can get out of control. And if you are not careful, you might end up with a bill that is too big to pay.

Michelle: I stay away from the credit card.

Shelby: Why?

Michelle: Because it could get dangerous.

Shelby: If you can’t pay your credit card bill every month, credit card companies charge you interest, which is a fee based on how much you owe. And if you don’t pay your bill on time, you will also be slammed with a big late fee.

But you can get in trouble with debit cards too. Some banks let you spend more than you actually have, but if your account goes below zero, you will get slammed with an overdraft fee, turning that $4 latte into a $46 drink.

But don’t get scared just yet, if you use them correctly, credit and debit cards can be a great tool. Both types of cards usually come with rewards programs that can add up to things like free flights, gift cards to stores and restaurants, and even cash back.

Ashley Vanderlaan: I don’t carry a balance on my credit card, but I charge everything first and then just pay it off.

Shelby: Okay, and the reason is to build credit?

Ashley: To build credit and establish a history.

Shelby: If you use a credit card and you pay your bills on time, it will help you build a good credit score, which is kind of like your financial GPA. Your credit score stays with you for life and affects everything from renting an apartment to buying a car. But here is the catch: if you use a credit card irresponsibly and don’t pay your bills on time, it can hurt your credit score and make things a lot tougher for you down the road.

Mitch: I’m not a borrowing man. My parents aren’t. So I just follow in their footsteps.

Shelby: You would rather spend what you have?

Mitch: Yeah.

Shelby: So now that you know the difference between credit and debit cards, go shop smart for the holidays!

Maggie: To find out more ways on how credit can cost you, check out our credit card simulator over at


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