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By Suze Orman
I am not going to lie to you. I love, love, love that so many people prefer using a bank debit card rather than a credit card to pay for purchases.
A recent survey reports that more than 3 in 4 of us would like to reduce our use of credit cards. And it’s the young adults who are leading the charge: nearly 9 in 10 adults ages 18-40 say they prefer to use debit over credit.
Amen! Using debit cards is what I call “standing in your truth.”
A debit card, when used properly, serves as a spending guardrail: your spending is limited to the money in the checking account the card is linked to. That’s a lot safer and smarter than using credit cards, where you can be easily tempted to spend more than you can repay quickly. That can lead to being charged a whole lot of interest—16% is the norm these days—on unpaid balances.
But here’s the thing my friends: It is also important to have at least one credit card. Especially the younger you are.
I know you understand the importance of building a strong credit score. Your credit score plays a large role in whether you can qualify for loans, and what interest rate you will be charged. It also seeps into other parts of your life. Without a strong credit score, you might be required to make a deposit for a cell phone plan or your utilities. Some landlords use credit scores to size up whether they want to rent to applicants.
Using a credit card responsibly—lots more on this in a sec—will help you build and maintain a solid credit score. Your debit card plays no role in your credit score.
A key factor in your credit score—it accounts for 35% of your FICO credit score—is your track record of making on-time payments for your loans and credit card bills. If you don’t have a credit card, your credit file lacks an important piece of information that is used to calculate your credit score. Your responsible spending using your debit card counts for nothing in the eyes of the credit scoring world.
A feature of your checking account is that you have the option to choose overdraft protection. That’s a service (provided without overdraft fees by Alliant19) that will take money out of your savings account to cover a debit card payment if you don’t have enough money in your checking account.
Those of you who have an Ultimate Opportunity Savings Account are on board that building a safety cushion of cash you can tap in an emergency is important. The key is to never touch that money except for a real emergency like a layoff or covering a deductible on your health insurance plan.
If you’re not in the habit of logging into your checking account on a daily basis, then I want you to set up a daily alert that shows you your transactions for the day, and your balance. This can help you become a more deliberate spender: when you see where your money is going, and you know exactly where your account stands, I think you will be more likely to make smart spending choices.
Once a month, log in to your checking account and study your spending for the month. I want you to circle every payment that was a “want”, and add up your total monthly spending on these non-essentials. I am not going to tell you this is wrong or bad. I am going to suggest—strongly—that you ponder if this spending is kind to you.
If you are struggling to make on-time debt payments, or you wish you had more money to send to your emergency savings account, spending less on wants gives you the money to work on financial goals that will make you more secure.
If you don’t yet have a credit card, you may find a secured credit card works well for building credit. If you have been turned down for a regular credit card, or are rebuilding your credit, this could be the way to go.
Unlike a “regular” credit card with a secured credit card you deposit money into your account, and then your spending is limited to that sum. As you pay your card bill each month, your spending limit is readjusted. This makes it a great way to avoid overspending.
Just make sure the secured card you choose reports your payment history to at least one of the three major credit bureaus: Equifax, Experian and Transunion. You want your spending to help you build your credit score.
The way to avoid running up an unpaid balance that is hit with high interest charges is to use your card on only what you can afford. You might consider putting recurring monthly payments on your card—maybe one of your streaming bills or subscriptions.
All other spending should be on your debit card, to help you stand in your spending truth.
This is a must-do. The whole point of using a credit card is to build up a great record of making on-time payments. And the surest way to do that is to arrange for the credit card issuer to automatically grab that money from your checking account each month, before your payment due date. Bill pay is free on both ends. And while you’re at it, tell your credit card issuer to send you an alert a few days before your online bill payment is scheduled. That gives you time to make sure you have enough money in your checking account to cover the payment.
Now that you have are on the right path with your card usage, I want you find out the next financial moves you should be making right now with my free action plan. Answer some simple questions about yourself, and I will create a personalized to-do list for you that prioritizes the money moves you need to take.
Check out these other blog articles from Suze Orman
Suze Orman is the author of 10 consecutive New York Times bestsellers, a two-time Emmy award winner, and your go-to for honest answers on everything finance. She is the most recognized personal finance expert in America today and host of the Women & Money (and Everyone Smart Enough to Listen) podcast. Suze is excited to be a contributor for Money Mentor.
Suze and Alliant teamed up to help Alliant members make the most of their life by teaching them to make the most of their money. New Alliant members are also eligible for The Ultimate Opportunity Savings Account.
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