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Joseph B. Wirthlin, “…I urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt to the extent possible. Pay off debt as quickly as you can, and free yourselves from bondage.”
Debit or Check Cards
A debit card is issued by financial institutions such as a bank or credit union. Debit cards are used in exchange for cash or checks. By using a debit card, funds are directly withdrawn from a checking or savings account.
Another type of debit card is an ATM (automated teller machine) card.
Advantages of Using Debit Cards
Quick, easy and convenient.
Eliminates the need to carry a checkbook and/or a lot of cash.
Doesn't deplete the available cash in your wallet.
Can be used out of town or at locations where personal checks are not accepted.
Reduces the possibility of loss or theft of cash.
Credit Cards
Credit cards can be a valuable and important tool. You need a credit card to rent things like games and videos, to make reservations, or to make purchases over the phone or on the internet. Credit cards are also accepted for payment in most places around the world. Credit cards can even help you build and establish a credit history. However, it’s important to remember that a credit card is also a loan that requires monthly payments. Carefully consider your purchases because credit card balances can quickly get out of control.
Each card has a limit or maximum amount of money that can be spent. Credit cards can be very beneficial if users can pay off the charges at the end of every month. The trouble comes, however, when users cannot pay all of the charges and interest begins accruing.
Interest rates on credit cards work the same way as savings accounts, except you pay, rather than receive, the interest. Additionally, most credit card issuers require only a small monthly payment. Although this sounds tempting, you can end up paying much more than you intended for a very long time.
| Balance |
Interest Rate |
Minimum Payment |
Payoff Time |
Total Pay Off Amount |
Interest Payment |
| $2,000 |
18% |
$15.00 |
11 years and 7 months |
$3,698.33 |
$1,698.33 |
For example, if you charged $2,000 on a credit card that had an 18 percent interest rate, and you only paid the minimum payment of $15.00, it would take you nearly 12 years to pay off the debt. By the time you pay off your original purchase, you will have also paid $1,698.33 in interest to the credit card company.
Interest is charged every month that a balance exists. So essentially, if you don't pay your balance off each month, you can end up paying more than what you originally spent on your purchase.
Choosing a Credit Card
When choosing a credit card, be sure to know and understand the terms.
Credit card offers vary. Be sure to read the small print.
Consider the following items:
Interest rate – If you end up paying interest, you’ll want to have the lowest rate possible. Also know whether your interest rate is fixed (established rate that does not change) or variable (rate changes with market or economic conditions).
Late Penalties - What will you be charged if your payment is late? Often, this is a set fee amount, but could also result in a dramatic increase to your interest rate. Late fees can cost you more than just your purchase price and interest. Pay on time!
Grace periods – Most credit cards offer a grace period. This means you have a certain time period in which to pay off the balance before any interest is charged. If you do not pay off the balance in full within that grace period, interest charges begin.
Other fees – Find out if you will be charged any other fees for having or using the card. Many cards charge an annual fee, which is an amount that you will pay each year simply for having the card. Other cards charge a cash advance fee which is usually a percentage of the cash advance amount. Additionally, some cards even charge you a minimum finance charge. This means that even if you pay off the balance in full, you’ll be required to pay a certain fee.
$$ Quick Facts
- 83 percent of undergraduate students have at least one credit card.
- The average credit card balance for undergraduate students is $2,327.
- Graduating students have an average of $20,402 in combined education loan and credit card balances.
(Statistics according to Nellie Mae, a student loan servicing financial institution.)
- 45 percent of American cardholders are only making the minimum or no payments on outstanding credit card balances. -- Cambridge Consumer Credit Index
Quotes from LDS Leaders
“Debt can be a terrible thing. It is so easy to incur and so difficult to repay. Borrowed money is had only at a price, and that price can be burdensome.” – President Gordon B. Hinckley, Ensign, March 4, 1990
“It is important to learn to distinguish between wants and needs. It takes self-discipline to avoid the ‘buy now, pay later’ philosophy and to adopt the ‘save now and buy later’ practice.” – Elder James E. Faust, Ensign, May 1986.
Words to the Wise
Credit cards are not free money.
Only use credit cards if you have money in your checking account to pay the balance in FULL at the end of the month.
Credit cards from your financial institution often have a lower rate than those offered by department stores.
Carry only one credit card. It’s easy for spending to get out of control when you have multiple cards.
If you have a balance on a credit card, always pay more than the minimum payment required.
Request your own credit card limit based on your income and needs. This will help keep you out of debt trouble.
About the Author:
Annalesa Vernon is our Vice President of Accounting. When she's not crunching numbers, she enjoys skiing, mountain biking, and reading.
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