In support of Financial Capability Month, the Receivables Management Association International (RMAI) presents the following information. RMAI also provides resources on the Consumers webpage of the RMAI website and at FinancialLiteracy.Rocks. Additional information on this topic and more is available online from the Consumer Financial Protection Bureau. 

Credit cards and debit cards can be confusing. They look the same but behave differently. Credit cards allow you to use other people’s money while debit cards only let you spend your own money.

How a Credit Card Works: Before you can get a credit card, you will have to complete a credit application. If you satisfy the bank, credit union, or store card’s minimum requirements, you will be given a card with a credit limit. A credit limit is the total amount you can charge on the card at any given time. For example, people who have a lot of expenses compared to the amount of money they earn, may be given a smaller card limit of $1000 to $2500. While others, who make more money and have a history of paying their bills on time, may be granted a much higher credit limit, such as $10,000. Additionally, people who are newly 18 years old or do not have any established credit history may also be given a smaller limit to start out.

No matter what your card limit may be, you will have to pay the money back. Each month, at the end of a period called a billing cycle, the card company will send you a statement. The statement lists all the items you charged using your card during the past month and includes the amount you must pay back so you are not charged interest. Interest is an amount of money equal to a percentage of the amount you owe the card company and did not pay back at the end of the billing cycle. For example, if your card statement indicates the balance due on a certain date is $500, and you only pay $200 of the $500 you owe, the company will charge you interest on the remaining $300. At the very least, you must make the minimum payment due on your card each month to avoid any penalties.

When you pay the total amount charged on your card within a billing cycle on time, you will not have to pay interest to the card company, and you will be considered a good credit risk. This will help you qualify for other types of credit such as a home loan, a car loan or even other credit cards.

How a Debit Card Works: A debit card is a payment card that deducts money directly from your checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases directly from your bank account. Debit cards offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors such as Visa or Mastercard.

Debit cards do not allow the user to go into debt, except perhaps for small negative balances that might be incurred if the account holder has signed up for overdraft protection. Debit cards usually have daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit card.

When you use a debit card, the money is automatically taken out of your checking account. When you use a credit card, you pay the bill later. You cannot use your debit card if your bank account is empty, but you can use a credit card. A debit card is simply a tool to use in place of a check or actual cash. You are borrowing money when you use a credit card. When you use a debit card, you are using your funds.

Many people find having both kinds of cards serve them well. Using a credit card instead of using a debit card is sometimes the only option we have to pay for an emergency or unforeseeable expense when we cannot cover with the money in the bank or the cash in our wallet. Using a credit card may also be the best way to protect yourself from someone stealing your debit card and depleting the money in your account. This is because if someone steals your debit card and takes funds out of your account, it may be more difficult, and take longer to get the funds back from the thief than if someone steals your credit card. When a credit card is stolen and you report the card as stolen, your liability for unauthorized charges is limited.

 The Consumer Financial Protection Bureau provides a wealth of information about choosing the right card for you. Visit to learn more about credit card key terms such as:

About Receivables Management Association International

Receivables Management Association International (RMAI) is a nonprofit trade association representing more than 600 businesses that support the purchase, sale, and collection of performing and nonperforming receivables on the secondary market. The RMAI Receivables Management Certification Program and Code of Ethics set the global standard within the receivables industry due to the rigorous uniform standards of best practice which focus on protecting consumers.

More information about RMAI is available at