Debt & Credit — FinTeen

What it means

The Cambridge dictionary definition of debit is "A record of money taken out of a bank account"

The Cambridge dictionary definition of credit is "A method of paying for goods or services at a later time, usually paying interest as well as the original amount."

Why it matters

Debit matters because it gives customers with a safe, debt-free way to do their daily spendings.

Credit matters because it gives you a credit score based on how well you do your payements, it acts like your financial reputation showing banks and businesses how reliable you are at paying back your borrowed money. It could also give you lower interest rates if your credit score is high.

How to use it

Debt/ Debit Card to spend only the money in your bank account since it draws the money directly from your account in real time without borrowing it from anywhere. If you don't have money in your account your card will get declined.

Credit/ Credit Card to borrow an amount each month ofr purchases, then pay the full balance by the due date of your card so you build credit history without paying interest. Although if you miss the due date you have to often pay 20% + APR.

Real-Life Example

You have €100 in your account, and you spend €20 with your debit card. And now directly you have €80 in your balance. With credit card you have €100 in your account spend €20 with your credit card, you still have €100 in your balance but at the due date that €20 is taken with your payement, basically you pay that money later.

Did You Know?

65% of collage students have credit card debt because of overspending and being not able to pay it, the interest builds up as their debt.

Key Takeaways

Debit card spends money directly from your balance, credit card barrows money from the back and you pay it at the due date.