Bridging The Gaap

What Is A Credit Card?

A credit card is a plastic card that allows a person to buy things on credit, allowing them to buy some things now and pay for them later. You can check out some other definitions here.

What Is The Difference Between A Debit Card And A Credit Card?

A debit card is a card linked to a bank account. You must have money in the bank account to use your debit card, and every time you make a purchase with your debit card. The amount of the purchase is taken directly from your bank account. For example, if you have $100 in your bank account and you make a $20 purchase with your debit card, $20 will be deducted from your account, leaving you with $80.

A credit card is different. A credit card is not linked to a bank account, and purchases are made on credit. Whoever issues the credit card is saying that they allow you to make purchases now, even if you don’t have the cash, but that you must pay them back later.

How Does A Credit Card Work?

Let’s say you qualify for a credit card from your local bank, with a $500 limit per month. You decide to go out to dinner and spend $50. You decide to pay for your meal with your credit card. This means that you have used $50 of your $500 credit. This means you now have $450 worth of credit available to you to use this month, and that at the end of the month you will be required to pay back this $50. Notice you did not need to pay cash, nor did you need to remove cash using your debit card from your bank account. You will however need to pay back this $50 at the end of the month.

What Is A Credit Limit?

Your credit limit is the maximum amount of money that you are allowed to charge your credit card. The credit limit in the example above was $500.

What Is A Credit Card Balance?

Your credit card balance is how much you have charged you credit card. The credit card balance in the above example was $50.

What Happens If I Can’t Pay Off My Credit Card?

What happens if you can’t pay back the $50 at the end of the month? The credit card company will then charge you interest on whatever amount you haven’t paid back at the end of the month. Let’s say that of the $50 charge that you have in your credit card. You could only pay back $20. You now have a $30 balance left on your credit card at the end of the month, meaning you still owe the credit card company $30, because you only paid off $20. The credit card company will now charge you interest on the remaining balance, in our case $30.

What Are Interest Charges?

When a person fails to pay off their credit card balances in full, they are charged interest. Interest charges are percentage of the total balance that has not been paid. This means that the person must now pay back the amount they still, owe, plus whatever amount of interest the credit card company is charging them for being late.

Let’s say your credit card carries an 18% annual interest charge. If we don’t pay off our $30 balance by the end of one year, we will owe a total of 30 x 18%, or $35.40. The extra $5.40 is interest we were charged because the $30 took a whole year to pay off.

Calculating monthly interest charges is a little bit more complicated and will be the subject of another article. For now it is enough to say that if you do not pay your balance off in full every month it will cost you money in the form of interest charges. Always strive to pay off your balance every month in full.

What If I Am More Than 30 Days Late In Paying My Credit Card?

If you are late by more than 30 days in paying off your balances not only will you be charged interest, but your personal credit rating will also suffer. Your personal credit rating will be discussed in another article, but for now you should know that paying off any debt late (or not at all) will lower your credit score, which can make it more difficult to access credit in the future. This applies to credit cards, but also to any bills you may have (utilities, cell phone, gym memberships etc…) and any other loans (car, mortgage, etc…). The key thing to remember is that you should always pay off your balance in full, every month!

How Many Different Types Of Credit Cards Are There?

Credit cards are big business, so you will find it kind of credit card for almost every kind of consumer. There are credit cards that give you reward points that you can redeem for stuff, credit cards that give you air miles credit cards for people with bad credit, and yes, even credit cards that will give you cash back on all your purchases.

Some retail stores offer their own credit cards, but these often carry a very high rate of interest and in most cases can only be used at that store.

How Do I Get A Credit Card?

Most banks, credit unions and caisse populaires will all offer their own line of credit cards. You can also contact one of the credit card companies such as Capital One, American Express, MasterCard, or Visa online or by phone.

Remember, ALWAYS DO YOUR RESEARCH! Not every card is right for everyone! Some people will be able to handle having a large amount of credit available to them, others will need only a small credit limit. Some people will prefer to earn Airmiles, while others may want to earn cash back. There’s no rush to get a credit card, so take the time to look at all the options and determine what’s best for you!

BTG Birthday Shout Out:

This article is dedicated to BTG reader Lisa P! Lisa’s comments were instrumental in creating the improved version 1.1 of BTG’s popular “Where’s My Money” Excel Budget Template, so I thought I’d return the favour. Happy Birthday Lisa, and thanks for the great comments!

What Is A Debit Card?

A debit card is a plastic card that is linked to one or more of your bank accounts. Issued by a bank or financial institution, a debit card can be a useful replacement for cash, and in some cases can make buying things, and depositing or withdrawing cash much more convenient. They are not without their problems, however, which can include hefty NSF fees, and a risk that you will not be reimbursed if you are a victim of fraud.

How do I use my debit card?

You can use your debit card in a few ways:

1. At ATMs: You can use your debit card at most ATMs to withdraw cash at any time. Note that ATMs that do not belong to your particular bank branch will charge you fees, so try to cut down o the number of times you have to use and ATM to withdraw cash. You can also use your debit card at your bank’s ATM to deposit cash or cheques directly into your bank account.
2. At the store: if the retailer is equipped to accept debit cards, you may use your debit card to make purchases, just as you would cash. 
3. Online: some retailers now allow you to use your debit cards for online transactions. Personally, I feel a credit card makes for a safer online transaction, but it is worth mentioning that in some cases you can use your debit card to make purchases online.

How does a debit card work?

The debit card is linked to one of your bank accounts. Every time you make a purchase with your debit card, the amount of the purchase is automatically deducted from your bank account.

Let’s look at an example:

Say you have $50 in your bank account, and you buy $20 worth of food at the grocery store using your debit card. $20 will automatically be taken from your bank account and sent to the grocery store as payment for the food you bought, leaving you with $30 in your bank account.

What happens if I use my debit card and there’s no money in my bank account?

Two things will happen:

1. You will be informed that the transaction could not take place when you try to buy something: a little message will pop up on the screen that says INSUFFICIENT FUNDS, or something else that also means that you didn’t have enough money to make the purchase.
2. You may be charged a fee for trying to use your debit card when you don’t have enough money in your account to complete the transaction (some banks will simply block the transactions and not charge you this fee: you should always ask you bank first). These fees, called overdraft fees can be HUGE, sometimes as large as $40!

What’s to stop people from using my debit card?

Some people will read the last few paragraphs and worry that their bank account can be compromised by using the debit card? What’s to stop a thief from stealing your card and emptying your bank account? A very smart man thought of this, and came up with a protective measure called a PIN code.

What is a PIN code?

PIN stands for Personal Identification Number. Think of your PIN as the password to your debit card. When you first obtain your debit card from the bank, they will likely ask you to choose a PIN code right then and there. You will input your PIN into a pad, the teller should not ask you to tell them your PIN out loud, after all, it’s secret!

You will need to use your PIN every time you use an ATM, make a purchase, or go to the bank. The debit card cannot be used without this PIN code, so should you lose your wallet or have your debit card stolen, the thief will not be able to use your card to make purchases or withdraw money from your accounts.

Debit cards are relatively safe SO LONG AS YOU KEEP YOUR PIN CODE SAFE.

How do I keep my PIN code safe?

The following will help you keep your PIN safe:

DO:

• choose something easy for you to remember, but difficult for others to guess
• choose something you can memorize
• use your hands to cover your PIN when you are pressing the numbers, as the photo below shows:

DO NOT:

• write your PIN down (if you absolutely must, rearrange the numbers and keep it in a fireproof, locked box with the rest of your important documents).
• write your PIN down and leave it in your wallet
• write your PIN ON YOUR CARD >.<
• tell ANYONE your PIN (you don’t HAVE to tell anyone your PIN, ever; this includes family members, bank employees, friends, co-workers, etc…)
• choose birthdays, social insurance numbers, addresses, phone numbers and so on for your PIN…if someone steals your wallet they can easily access this information!

What should I do if I have lost my wallet or debit card?

Tell the bank immediately. Most big banks will have 24hrs service, so as soon as you notice your debit card or wallet is missing, tell the bank. They will immediately make it impossible for anyone to use that card. You must tell the bank as soon as possible, because the more time you wait, the more time thieves have to steal your money (and they work FAST).

What should I do if I am a victim of debit card fraud?

If you have been a victim of debit card fraud, immediately contact your bank and let them know the situation. The likelihood of you getting refunded if you are a victim of fraud increases if the bank and the police are able to catch the perpetrators, for which they need you and your experience.

For more information, click here to access Canada’s Office of Consumer Affairs, which has some great information about what to do if you are a victim of fraud.

Will I be refunded if I am a victim of debit card fraud?

Maybe, but maybe not.

The bank may not refund debit card fraud. The reasoning behind it is that a debit card has that extra layer or protection by requiring the user to input a PIN whenever it is used. The banks may not refund debit card fraud, because it’s your responsibility to keep your PIN safe.

As for whether or not you will get your money back, that’s a difficult matter. It seems the burden of proof is on Canadian Financial Institutions to prove that you were negligent in your use of your debit card or PIN code:

“Be aware that if - as a result of the investigation - your financial institution is not reimbursing your full losses, they are responsible for showing that, on the balance of probabilities, you contributed to the unauthorized use of your debit card. If you are not satisfied with this explanation, speak with your branch manager.” (source)

Still, “negligence” is a broad term. In some cases, doing anything that I told you NOT to do is enough to be considered negligent: for example, it is considered negligent on your part to write down your pin and keep it close to your card, to using a pin that is your telephone number (or other easily identified PIN), not notifying your bank as soon as you find out you were scammed, and so on (source).

For a complete list of what is considered negligence on your part, check out this list at Canada’s Office of Consumer Affairs.

For More Information:

Canada’s Office of Consumer Affairs’ website  about debit cards is quick, conscise and easy to understand. You should definately check out the following links from their site:

1. How can you protect yourself against debit card fraud?
2. How does fraud occur?
3. What should you do if you are a victim of debit card fraud?
4. When would you be liable for losses?
5. How much could you lose?

Now It’s Your Turn! 

Yesterday while perusing Facebook, I found that one of my friends was particularly anguished.

Here’s why:

on the bus - there was a poor family - a mother, father, the mother’s pimp, and two kids, a girl aged about 7, and a boy of about 5 or 6. the mother continually called her daughter a “dumb b****” and pulled her hair, while the girl yelled and swore at her parents. then the supposed “father” started banging his head on the window of the bus, so hard that everyone on the bus heard.

i had to get off the bus

No kidding :/

Her story really had an impact on me, first because of the horror it evokes, second because it made me re-consider everything I’m trying to acheive with this website. These people are part of BTG’s target market: the poor, the desperate, the forgotten, poor underclass of society.

This is the group of people BTG was founded to help, and to help help themselves. But are they listening? Or forget listening, can they even hear me, what with it being so expensive to use the internet in Canada?

And if they are able and willing to listen, what should I say to them? What knowledge can I pass along that would make a difference in their lives?

And what would they say back to me?

I think the answer to the last two questions is the same: I think they would tell me, and that I should, BRING IT BACK TO BASICS, tell people they need to know financially to survive, to live, and then to thrive.

With this in mind, it is my pleasure to introduce the BTG Basics Series:

BTG Basics will be a series of articles detailing the fundamental financial rights, financial education and financial products that you need to know about to survive in this world.

The first BTG Basics article will be posted later tonight, with further articles in the series happening at least once per week.

So let’s bring it back to basics, guys. Let’s start at the beginning, together, and work our way up from there.