Plastic

I have to imagine most, if not all of you, carry credit and/or debit cards.  Do you understand all of the nuances?  Let’s dig deeper.

The banks are not interested in your full payment of purchases under credit cards each month.  They want to induce you to pay partial, then start charging very high interest rates.  If you pay purchases in full, they only earn 1-2% of the purchase, and that is before the costs of the rewards programs they offer to you.

When you borrow (by not paying in full the previous month’s purchases), each new purchase incurs interest generally at a rate of 15 to 18%, if not more.   It’s difficult to stop the interest clock.  You have to pay your outstanding balance in full and bring your actual balance to zero.  Not your statement balance, but the actual online mid month balance. The only way to be certain of your balance is to get it online, then hurry up and pay electronically before your next purchase hits the account.

The statistics on credit card debt are frightening.  As we often say in Vegas or Atlantic City, the house always wins.

Managing your credit cards requires a great deal of financial discipline.  It is easy to purchase items, as it is not coming out of your bank account or wallet.  Credit cards make it way too easy to spend beyond your budget, which is what the banks want.

For example, when I acquired GEMPIRE in 1997, I made sure that I had large available credit with my credit card companies in the event I had a financial emergency.  Fortunately I did not need to access the lines, but they were there.  (Although that money would have been expensive, not having enough money would have been more expensive.  Banks don’t lend you money when you need it most!)

It required discipline to avoid using those lines.  And if I really dipped into it, I may never have recovered.

Debit cards are different.  You need the cash balance in your linked account in order to get the purchase approval.  BUT (and this is a big but) if you are not diligent in recording your debit card purchases, it is all too easy to create overdrafts in your checking account.  Cha-ching, the banks then hit you with huge overdraft fees.  Did I mention statistics earlier?

There are other risks associated with debit cards.  Certain merchants (gas stations and hotels come to mind) may put a hold on more than your purchase amount for a few days, which can easily result in overdraft fees if you’re not careful.

If  your debit card is stolen, although the bank will eventually return your money, it will take some time.  Credit cards, on the other hand,  allow you to dispute charges and put your card on hold until resolved without loss of cash or incurring interest on the “temporary non payment.”

Now you are an educated consumer.  Charge wisely.