AUBURN, Ala.— Purchasing decisions are ever present in our busy lives. Limited hard-cash assets and the growth of paperless payments are making the economy more controlled by debit cards and credit cards. Daily, U.S. consumers are faced with the challenge of budgeting such accounts properly. This task is not always easy.
“Any transaction made using a debit card results in banks directly deducting money from the balance in an account,” Jones explained. “That being said, the debit card is limited to the actual amount of cash in the account.”
Jones said debit cards do not involve the borrowing of money or a payment of interest upon the principle purchase amount. Corporations do not require consumers to pay interest on a debit account, therefore a debit card is a much more feasible option for a variety of purchasing decisions.
Using a debit card will prevent individuals from falling into the “credit card trap,” according to Jones.
“When possible, use a debit card because it will prevent you from accidentally falling into the trap,” she said. “Credit cards are generally riskier transactions that involve the borrowing of money from a creditor, also known as the credit card company.”
Although a credit card “allows a consumer to purchase goods and services or withdraw cash, and pay back the money at a later date,” the negatives clearly outweigh the positives, Jones said.
“Credit card users must pay interest for borrowing that money. They pay back the principle amount and also pay a certain percentage of interest,” added Jones.
Purchasing on credit leaves consumers at a disadvantage because credit companies require interest payments. Interest payments accumulate when consumers do not pay off debt in a timely fashion.
However, there are certain situations where the use of a credit card is more reasonable. Credit corporations report card transactions to the “credit bureau,” Jones said. By using a credit card, consumers build a credit score. This is determined by the duration of payments to the creditors.
Jones explains that all credit companies report all payment transactions, including data regarding percentage and timeliness of payment. “When a persons makes payments on time, a person builds credit. Late payments lower the credit score.
Both debit and credit cards give consumers the ability to purchasing items easily, Jones said. If the consumer is not careful, they may lose track of such transactions.
“Whether you have a debit or credit card, it is important to record all purchases or transactions,” she said. “Overspending on an account is easy if one is not recording all purchases made.”
Featured image by Marie C Fields/shutterstock.com.