Debit and Credit - Learning Accounting Basics

The terms ‘debit’ and ‘credit’ can be confusing when learning accounting for first time but why is that? If you go to bank and put money into your account then teller will say, “I am crediting your account with X amount of dollars,” on other hand take money out of your account and teller will say, “I am debiting your account X amount of dollars.” Plus with debit machines everywhere and everyone carrying at least one credit card these two terms take on a whole new meaning.

Unfortunatley what we just clarified about why terms debit and credit are so important in accounting world debit and credit, have to be unlearned quickly. Why is that? in accounting, term debit is used to describe a bank account and that money owed are actually credit accounts – exact opposite of what we’ve been taught elsewhere.

In accounting terms, neither credits nor debits are ‘bad’, but they need to equal each other in order to balance themselves out in end. Every itemized transaction, no matter if it’s a deposit or a bill to be paid has both a debit and credit posted in accounting world. This is what is called ‘double-entry accounting’ – so when you go to bank, and teller says, “I am crediting your account X amount of dollars,” she is also debiting an entry of a similar amount without telling you this. The same goes for when teller tells you, “I am debiting your account X amount of dollars,” – accounting will show that a credit of same amount is being made elsewhere at same time.

Credit card consolidation is a popular solution for those with significant credit card debt, usually distributed on three or four different cards. Basically, this means putting all your debts together on a single card, like transferring it all to one loan. Of course, goal is to pick a card that offers better conditions than what you already have, in order not only to simplify, but also to reduce your payments.

Since there are so many offers out there, and lenders fight over your business, you can sometimes find solutions that can save you thousands of dollars per year. If you consolidate your debt to a credit card with low interest and 0% balance transfer, you can save considerably, and pay off your credit sooner (which, of course, is main goal when dealing with credit card debt).

The most serious mistake people do when consolidating is to go though entire process just to simplify their accounting, and they don't pay enough attention to how much they could save. Another mistake is to close your zero balance accounts when consolidating. This practically means you close some of your credit options, which is never a good idea.

When you plan to consolidate, call your banks and explain situation. They want your business, and you'll be surprised how flexible and willing to negotiate they can be, once you explain to them that you have various options available to take your business someplace else.

There are many web sites offering solutions for debt consolidation. However, keep in mind that, while this is a comfortable and fast solution, you don't have options to negotiate directly with banks. Also, most often best offers come from banks that want to keep your business, so make sure you give a change to banks you've had a long-term relation with. If you're not pleased with results, take your money elsewhere quickly.