Types of debit cards and credit cards

It is important to know the different types of debit cards and credit cards before you pick one to use.

Traditionally, youth learn money management skills from their parents; however, this is a topic that many parents do not want to discuss with their children. Michigan State University Extension 4-H Youth Development has some resources that can help parents talk to their children about money and money management. Are you aware there are four types of debit cards and credit cards? Each is unique and this is an example of a topic that young people should understand.

Debit cards are exactly like writing a check. Most merchants accept debit cards and will ask you to enter your PIN (Personal Identification Number) and the money is taken directly from your account, typically checking account. Credit cards allow you to take on debit; think of it as a line of credit issued by a lender. If the debt is not paid off each month, interest will be added to your debt. For more information on the difference between debit and credit cards, see “Debit cards versus credit cards.”

Types of debit cards

  1. PIN only: Linked to your bank account and can be used for cash transactions and fund transfers, purchasing from merchants and paying bills online or over the phone. The card holder is required to enter their PIN for every transaction to establish identity and maintain security.
  2. Dual-use: Both signature and PIN enabled, ties directly to your bank account. Signature or PIN can be used to verify your identity.
  3. EBT (Electronic Benefits Transfer): Provided by the state or federal government to users that qualify for food stamps, cash payments or other benefits. Can be used to make purchases at participating retailers or depending on the program to withdraw cash from the ATM.
  4. Prepaid: Not linked to a specific account, provides access to funds deposited directly on the card. (They work like a gift card.)

Types of credit cards

  1. Standard: General purpose card with revolving balance (credit is used up when purchases are made and is open again once the bill is paid). Usually a starter credit card, applicants have little or no credit history.
  2. Reward: Rewards can come in the forms of cash, points and discounts and are intended to have you increase your spending. This card usually has an annual fee and a lot of fine print; make sure the rewards earned are more than the annual fee.
  3. Secured: Also known as a pay as you go card. Gives people with bad credit history a chance to reestablish credit. User deposits a “secure” amount which makes for their credit line. The credit limit is a percentage of this amount. It comes with an annual fee and high Annual Percentage Rate (APR).
  4. Charge: Do not have preset spending limit, balance must be paid in full at the end of each month.

Before you run out and get a debit card or credit card, make sure you do more research. You need to know more than just the type of card you are getting. Think about annual fees, APR, spending limits, security, etc. More information on money management topics can be found on the 4-H Money Management website or through the High School Financial Planning Program offered through the National Endowment for Financial Education. Money management refers to learning the basics of personal finance as a youth is a positive step toward a successful financial future.

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