Question:   What’s the difference between debit cards and paying off credit cards?

Answer:      Most people find themselves struggling on paying off credit cards every month. If you have a large balance, it can become a bit more than stressful.

More people than ever are switching over to debit cards, in effect doing away with credit cards almost entirely, for peace of mind and in order to avoid the many pitfalls of credit cards.

Understanding the difference between the two types of cards is important for every consumer.

Choosing a debit card when you shop or make other purchases means you will no longer be paying off credit cards every billing period. A debit card is roughly the equivalent of cash; you pay right then and there and the amount is immediately deducted from the checking or savings account that is attached to the debit card.

In essence, you are funding your own credit line with your own money. There is no “pay later” with a debit card. You are in control and you avoid any fees or penalties associated with use of a credit card.

You should always be sure to have sufficient funds in your account before making a purchase. Overdraft penalties can quickly spiral out of control, similar to what can occur with checks, so always read the fine print in your account agreement with the bank.

Credit cards provide a buy now, pay later option, which basically equates to the creation of debt. Lending companies set an approved limit that you can borrow up to. Once you swipe the card and sign your name, you have just agreed to borrow a certain amount of money from that company.

When you sign your credit card agreement, you promise to pay them back in a timely manner. Annual fees, interest and penalties are all part of the credit card game. It’s a game you really don’t wan to play because it’s set up for you to lose in the end.

Paying off credit cards in full each month does work in your favor because no interest will be added to your purchases. However, if you do not pay your balance in full each month, interest will be charged and off you go into the downward spiral of debt.

The idea of “buy now, pay later” is very alluring, but it has caused many people to fall into financial crisis.

Instead, do what your grandparents and great-grandparents did.

• Live on less that you make.
• Don’t’ buy what you can’t pay cash for.

By all means, do not fall for the countless reward programs associated with credit cards. Any benefit you get from a rewards program (eg. points, cash, mileage, etc.) is far outweighed by the risks attached to owning a credit card.

A debit card is all you need. When used wisely, it will ensure you won’t be playing the game of paying off credit cards monthly just in time before all the fees and penalties hit.

» What are the key steps to reducing my debt?
Recognize that debt does not provide opportunity and freedom, it destroys it. Say to yourself, “It’s time I act as if I’m the adult in the room and take ownership of the problem to pay my debts.”

» What does the IRS count as taxable income?
Learn the specifics about employer; tips, odd jobs, interest income from savings and investments, profit from the sale of investments or real estate, etc. Know which items must be considered as taxable income.

» Of all the important financial principles, which one should be weighted most heavily?
Living debt free is critical to your happiness, which is the number one “life” principle.

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