Credit is Handy, But Mishandling It Can Come Back to Bite You

The Convenience & Cautions of Credit

When you talk about Visa or MasterCard, you’re probably referring to your credit card. But Visa and MasterCard are actually payment networks or financial processing systems. These competing organizations handle trillions of dollars of credit and debit card transactions around the world, serving as the intermediary between you, the merchant who accepts your card, the merchant’s bank, and the bank that issued your card.

Most merchants that accept one of these cards generally accepts the other, so from a pur- chasing perspective there’s little difference between them. Most banks also offer both cards. But some banks have stronger relationships with one or the other, and tend to offer more perks if you sign up for the one they favor. Most banks also offer debit cards with a Visa or MasterCard logo. You can use these cards at point-of-sale locations and also in place of credit cards in restaurants and retail stores. That differentiates them from bank ATM cards.

If your credit card bill
 invites you to skip a
month’s payment
without penalty, the
lender isn’t doing you
a favor. If you take the 
offer, you probably won’t
owe a late fee, but you will owe finance charges on your unpaid balance. And any purchases you make after the due date you skipped will probably accumulate interest from the day you make them.

If you want to have the convenience of a credit card without as great a potential for debt problems, consider a debit card. Most banks offer debit cards, usually as a feature of your checking account. And they’re accepted just about everywhere credit cards are. They let you
 pay for purchases directly with money that’s withdrawn from your checking account.

A debit card doesn’t guarantee you won’t overspend, especially
if you agree in writing to over- draft protection on your account. But at least your bank balance will be obvious when you visit
an ATM or check your account online. That makes it harder to deceive yourself about where you stand financially.

Contributions from the book It’s Your Financial Life in this press release are used with permission from Light Bulb Press.