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Financial Literacy

Financial Literacy

Home Finance Credit and Debit Electronic Payments

Electronic Payments

To pay her bills, your granny had to put on her Sunday hat and walk to the bank or sit down with her tiny glasses and pocketbook to write out the checks and snail mail them. And if you head into a bank on the last day of the month, you might see some folks still trying to pay their bills in person. They're probably also using walkers and saying things like "When I was a kid…"

Lucky for you, there's a better way.

Open up your favorite app or website to pay your bills and a bunch of payment options pop up:

Debit Cards

Your bank will usually let you use your debit card much like a credit card.

Basically, the bank just sends over the money as soon as you pay; the money is automatically taken out of your account. That can be good—you don't have to wonder how much is left in there—but if there's a problem with the payment and anything goes sideways (the company you're paying goes bankrupt, there's a dispute about payment, aliens take over the earth), the money is already gone and you might have to go through lots of red tape at the bank to get your money back. That is, if you get your money back at all. If not, you're screwed when the aliens are everywhere and you really need the bucks to stock up on bottled water.

E-Check

When you pay by e-check, you're going to be asked to give a huge string of numbers only a Mathlete would love. It might look like a Sudoku puzzle just threw up all over your screen, but those numbers do mean something:

  • The routing number is the ID number for the bank.
  • The account number tells the recipient to hit up your bank account (and not someone else's).

When you pay by e-check you're using the ACH (Automated Clearing House) network to transfer money to a company's bank account. The ACH network is an electronic network of all the banks in the country, and it allows all the databases of all the banks to communicate with each other electronically. The whole thing allows millions of payments and purchases to be made between hundreds of millions of customers with minimal mistakes (mostly because, in this system, everyone is treated like a number).

If you get your paycheck automatically transferred to your account or you use pre-authorized payments to pay for rent or your gym membership, you probably use the ACH network to make it happen.

Credit Card

If you pay your credit card in full every month (good on ya!) there are a couple of advantages to paying your bills with credit cards. 

  • If your card comes with perks like free travel miles or cash back, you'll get more of 'em.
  • If anything bad happens while you pay (an identity thief gets hold of your card number or the company you're paying claims they didn't get the payment) the credit card company will handle it. When you pay with your debit card or straight from the bank account you have, it can take longer to handle disputes and you might not get your money back.

PayPal

PayPal is an online system specifically for online payments and financial transactions. It's easy and free to set up an account—all you need is an email address. You can transfer money back and forth between your bank account and your PayPal account so that you can pay for stuff online.

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