Credit, Debit Cards, and Cash Apps
Credit Cards vs. Debit Cards:
With a debit card, people deposit money directly from their account. With a credit card, people loan from a lender and repay them in monthly increments.
Credit cards have a set minimum deposit and an interest rate. If your minimum deposit is $10, and you spend $100, you only have to pay $10 at the end of each month. If you do not pay in full, the additional cash (in this case, $90) will accumulate interest. Interest is exponential and can lead to terrible debt. Misinformation about credit cards is that people only have to pay the minimum deposit. In actuality, the interest will pile on and become exponential debt that cannot be repaid.
Credit cards are meant to be loans, an asset and investment for credit companies, and a liability for you. Cars, homes, medical care, and even daily trips to the grocery store should not purchased with credit unless it can be repaid at the end of the month. The key difference between credit and debit cards is that credit affects your credit score, either building it or risking it, and debit avoids debt and credit altogether.
Credit Card Specifications:
If someone has a poor credit history, they can purchase a secure credit card which will help them build their credit score. A secure credit card is a safety net that sets a spending limit backed by a security deposit. Secure credit cards have low annual fees, good cash-back rewards, and the spending limit can often be lifted.
Student credit cards are available for college students and does not require a credit history. The interest rate is high at around 20%, however, it is a good option for college students who pay in full and want to build their credit score.
Reimbursement policy deposits are payments to employed workers who must use their own money for work. They are executed before interest is charged at the end of the month.
Additional notes:
Chasing rewards and bonuses from new credit cards will not help you financially.
Taking cash advances is risky and could put someone in debt.
It is good to read the fine print of your specific credit or debit card to make sure you are insured from fraud (any form of a zero liability policy).
APR vs. Deferred Interest
Credit Cards have annual percentage rates (APRs) that provide annual interest estimations. If your APR is 0% in the first year as a promotional period (balance transfer) by a credit company, the deal is likely to become less desirable in the future. In the short-term, paying the minimum balance without interest is extremely beneficial. This can be used as a strategy to pay off one of your credit cards from one company with a credit card deal made from another company. Although there is no repercussions for not paying in full during the promotional period, the goal is to pay off as much as possible.
Credit companies can also incentivize with deferred interest, which is similar to APR, except it accumulates interest during the promotional period. The interest is delayed and does not need to be paid until the promotional period is over. Although deferred interest is similar to 0% APR balance transfers, it is nowhere near as beneficial. Although you don’t have to pay for it now, you must pay for it (all) later. If you cannot not pay off the entire debt, you should not get deferred interest because it will put you in greater debt.
Cash Apps:
With the rise of digital payment systems, having a cash app is helpful with daily payments, investments, and bank transfers. It can even come down to whether you prefer an Apple, Samsung, or Android device (Apple Pay, Samsung Pay, and Google Pay). Some of the most well-regarded apps for small transactions are Venmo, Paypal and Square Cash (also known as CashApp). If you are a credit union member, Zelle offers bank to bank transfers, and for international exchanges, Xoom, Circle Pay, and Remitly are good options.
Credit Scores:
Credit Cards offer rewards such as airline miles, cash-back, and other expense savings. Having a good credit card history (paying back credit on time) significantly impacts your credit score. Factors of your Credit Score:
payment history
FICO score: an analysis of credit accounts history (the longer you have had a credit account, the better), your management of finances (diversity of credit accounts, car and student loans, mortgages, etc…), the number of new accounts you have opened, and hard inquiries (when someone you know or an employer views your credit information).
Hard inquiries can can be avoided, but sometimes they cannot. When you purchase a new credit card, loan, mortgage, or borrow credit, the lender may request a hard inquiry from a credit bureau to view your information and weigh the risks of lending to you. Although hard inquiries negatively impact your credit score for about two years, you can limit the impact it has. You can apply for the same loan at multiple companies (to compare rates) and credit bureaus will only record it as one hard inquiry. Hard inquiries may drop your credit score, however, they will not have a drastic long-term affect, especially if they are not simultaneously. A red flag for credit bureaus is when someone applies for multiple credit cards and loans simultaneously without proof of repayment.
Soft inquiries are similar to hard inquiries except it does not affect your credit score. They privately appear on your credit report for two years and lenders can use them to pre-approving a loan, mortgage, or credit card. Soft inquiries from the credit bureaus have a fee, however, there are free solutions:
By logging into your account or checking your loan, credit card, or mortgage statement, lender companies may provide a free overview.
Free online resources or scoring websites such as Credit Karma (Annual Credit Report).