Debit and credit cards

0:00- [Instructor] So what I have here, two pictures of things that look very similar but actually are kind of different. One is a debit card and one is a credit card and actually we had an artificial intelligence generate these images. So some of the text is a little bit funny but that's good because we don't want someone's real credit card here.

0:20But an obvious question is, and I've always asked this when I first had them, is what is the difference between a debit card and a credit card? Because they look awfully similar, and most cases, you can use them in the same places. So lemme make a little table here.

0:34So lemme put a debit card on the left, and then credit over here. So one of the biggest differences is that a debit card is a convenient way to use your own money. Use your own money. Lemme make it clear, this is the debit card over here and this one over here is the credit card.

1:03Now what do you think a credit card is going to be? And credit, the word credit is a little bit of a clue here. Well, here, someone is lending you money, or essentially you are borrowing money that from someone else for at least a small amount of time and maybe a longer period of time.

1:21Borrowing the money. So if you were to go to a store and let's say you had to buy a gift for $20 and use your debit card, that $20 is going to come out of your bank account, your checking account to be specific in most cases. While if you were to charge that on your credit card, and once again, they look very similar, you oftentimes have to look for the word ATM card or debit card for the debit card and look for the word credit card or have some other way of knowing it's your credit card.

1:53Well, if you charge that $20, then you're essentially borrowing that $20 from the issuer of the credit card company or the issuer of the credit card. So the next question is, well, how do they make money? Well, if you're borrowing money, that usually involves paying back, but paying back with interest.

2:15So this is, let me put charges interest here, or lemme just write interest. So this involves interest. So you're going to usually pay back a little bit more than you borrowed, or actually in some cases a lot more depending on the interest rates. Now there is an exception to that.

2:32Usually if you pay the amount that you use on your credit card within that same month or in that same statement period, then you don't have to pay interest. But if you wanna keep that balance and keep borrowing money and not paying off the entire amount, well, you can pay a smaller installment and then pay interest.

2:51And you could imagine that could be a dangerous game to play over the long period of time, if you keep spending money that you don't have and you have to spend interest on it. The debit card, since it's your own money, it's taking it directly out of your bank account.

3:04This does not involve interest. So no interest in this situation. Now, related to interest, I guess we could also say this is you could pay off all at once in that month, in which case, you're not going to pay interest. But in many cases, you pay off over time, over time.

3:24And once again, this is not really relevant here because you're using your own money. So you are paying directly. Maybe lemme write it this way, paying directly. So big way to think about it is that debit card is just a convenient way of using your own money. So you're not borrowing, you're not gonna pay interest.

3:47Credit card, it's another convenient way of paying for it. In both cases, you don't have to carry cash around. But if you don't pay back that amount in a relatively short period of time, you're going to have to pay off over time and pay interest on that money.

4:05Now another thing is not only are both of these useful, you don't have to carry cash. They're both used typically for things like online purchases. And as this picture that the AI generated, they also look very similar.