Debit versus Credit (plus more lessons involving $$)

...at no charge, because this is a generous blog. ;)
Take advantage of it because the real world is not so generous.

From how I understand it:
Debit = deducting the money you have in your bank right away
Credit = putting the charges on a bill, then send to your bank later to claim the amount you have signed

I hope that makes sense. This is in no way the official definition, although I may still be right.

So to help us understand better, refer to the story below...

I saw a really cute blouse at Forever21, cost $XX. I went into the store and did the usual shopping ritual (refer to Appendix B [for blah]), and decided to make it mine. So I approached the cashier. I now have 3 options:
a) pay with cash (which nobody here seems to do)
b) use my card and pay with debit
c) use my card (the same one mentioned in option b) and pay with credit

Option (a)
For the purpose of explanation, option (a) can be ignored (if you still have no idea how to pay with cash, you either need some serious real life experiences, or... Sigh...)

Option (b)
The card was swiped. I entered my password. A screen popped up asking me if I would like to have "cash back" (sort of like money withdrawal; mentioned in "Beware of those charges"). Whether I choose "yes" or "no", I am charged $1.
Behind the scenes, the machine let my bank know that I am paying $XX, and I approved it. The bank gave the money from my account to Forever21.
When I walked out of the store, my bank is $XX poorer. Transaction ends

Option (c)
The card was swiped. I ignored the screen that says enter my password, and gave my signature in the next screen instead.
Behind the scenes, the machine send a bill to my bank, stating that I owe them $XX.
When I walked out of the store, I still had the same amount of money in my bank as when I entered the store. Transcation continues...
Sometime later, my bank look at the bills sent to them, and pay each one back with the money in my account. Transaction ends


So technically, you can spend money that you don't have with CREDIT. Refer to below for an illustration of the concept... (another tragic story that I lived through)

(continuing from "Beware of those charges") Understanding that debit charges but credit does not, I charged my bills correctly, and lived "happily ever after" for 3 months. Then it was the Christmas break, so I went traveling. I underestimated the money that I needed, but I was not worried since I have THE CARD.

I thought that I would not be able to use it once my account is emptied. BIG MISTAKE. Since credit is merely sending the bill to the bank, it can be cleared as long as the bill is sent out.

Behind the scenes: the bank collect those bills, when it was about to pay each one back, it realized that there isn't enough money in there...

This story doesn't have too much of a happy ending...

I was charged $27 for each transaction with insufficient fund.
Although the bank did refund 1 x $27 to me, the blow was still pretty painful...