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Debit vs. Credit: How Do You Use Them Differently?

Debit or credit?

At a distance, there’s virtually no way to distinguish the small plastic cards with Visa or MasterCard logos. Both allow you to pay for goods and services instantaneously by transferring cash behind the scenes.

But anybody who understands how these two payment cards work knows the similarities are only skin-deep.

  • Credit cards assign you a credit limit, an amount that you can spend on the card at any time. By definition, this is credit…not cash you actually have. When you pay with a credit card, the bank pays the merchant immediately, but you don’t have to pay the bank until the end of the month or over the course of many months (in which case the card charges you interest).
  • Debit cards work like instant checks. When you pay with a debit card, the payment network immediately deducts the purchase amount from your bank account. If you don’t have the money for the purchase in the bank, you can’t spend it using a debit card. (Unless you have overdraft “protection”, in which case the bank will let the transaction go through but charge you a fee for overdrawing the account).

The great debate

Debate continues about whether debit cards or credit cards are the better way to pay. Although both debit and credit cards are, typically, more convenient than cash or checks, there are pros and cons to both.

Credit cards, for example, allow you to pay for things without worrying about cash in your bank account. This, of course, is also bad, because it can quickly lead to overspending and long-term credit card debt. Many credit cards feature rewards programs for no annual fee and many offer other benefits like purchase protection and travel insurance.

Debit cards come with some of the same benefits as credit cards (like protection if the card is lost or stolen). Unlike a credit card, however, you can’t rack up thousands in purchases that you can’t afford with a debit card. There are some situations in which debit cards may be less convenient than credit cards. For example, if a merchant like a hotel or car rental agencies requires a deposit, they’ll take actual cash out of your bank account rather than reserving a portion of your credit line.

Another complaint about debit cards has been the lack of rewards. If a credit card will give you $50 for every $5,000 you spend but a debit card won’t, why wouldn’t you use a credit card, assuming you paid it in full every month?

Finally, another thing a credit card does that a debit card cannot is help establish a credit history. Using a credit card can set you up for getting the credit score you need to get the best rates on a mortgage down the road.

Credit, debit, and the psychology of spending

Say what you will about the technical differences between credit and debit, the big distinction is how they work—and what that means for the psychology of spending.

There’s a common belief out there that we spend more with a credit card than with a debit card or cash because we’re spending “imaginary money” (in other words, not cash). Vice versa, when we spend with cash or a debit card, we “feel” the money leaving our pocket or bank account, and spending is more painful. It’s easy to believe that this is true. It makes sense. Unfortunately, other bloggers and I have not been able to find a scientific study that proves this. So it’s certainly plausible that you could spend more with a credit card, but we can’t say for sure.

What matters is how you feel about your spending. That’s right; you get to make a decision for yourself! No financial guru or blogger can tell you whether debit cards or credit cards are best for you. If you’ve dug yourself into a big red hole of credit card debt before and know that if given the plastic, you might know that you need to stick to debit. Or maybe you just don’t like the idea of credit cards so you stick to debit. I’m a firm believer that on this one, there really is not a “right” answer.

So let’s hear it!

How do you use credit and debit cards differently? Do you avoid credit cards altogether? Use both? Why?

Published or updated on September 29, 2010

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Deepak says:

    I learned a lot about credit cards through this website.

  2. Kim says:

    Credit card for 90% of all purchases, bills, etc. The reason for this is I pay it off without fail in full each month, I have a budget so I know how much I’m charging, and I get reward points that I use to get cash reimbursements. So technically I’m making a little bit of money every time I use my credit card.

  3. David Weliver says:

    Thank you everybody for entering! These were even better responses than I had hoped for. I just wanted to let everybody know that I drew the winners and notified everybody by email this morning. Congrats to the winners and thanks to everybody for the great comments.

  4. Shery says:

    I don’t use any kind of a card these days. Having to go through pre-planning of how i’m going to spend the money (this includes pre-planning to having money to spare that I can just spend without having to think what it is I’m spending it on) is the way I find it easiest to keep accountable to myself. I use the post office to pay my bills, and sign special leases for the internet company to automatically deduct the small fee every month from my bank. All in all, this means I have an hour or two hours tops per month in which I spend time on this, and this includes waiting in line.

  5. melanie says:

    I use my credit card for most things – soley for the rewards. I pay off the balance every two weeks when I am paid.

    I only use my debit card when i’m at a place that offers cash back, and I need some cash! However, both my debit card and credit card are linked to the same rewards program so it all equals more points on my account :)

  6. Melissa says:

    I racked up a lot of credit card debt when I moved out on my own after college, about $12,000 worth. I also have about $50,000 in student loans to pay off. I wasn’t making a dent in the debt until I moved into a place with lower rent and started only using debit cards for purchases and bills.

    Now I track every major payment and I am down to about $4,000 in credit card debt after about 2 years of paying it down. U only use my credit card when I underbudget or have an emergency expenditure.

    I’d love to use a credit card to gain the points. Until I pay off the $4,000 and can always pay off my balance at the end of the month, though, it’s just not worth it. Why get 1% back when I’m just going to give it back in interest?

  7. Luke says:

    I use my credit card for larger purchases. (put my bike and bought into an investment account with it) I always pay off the card, but it just gives me a buffer from my spending to my account. I have my phone bill on autopay with the credit card so I always have something on there. Debit card… I use for prettymuch everything under $100.

  8. India says:

    Before I moved overseas, I used my debit card only when I needed cash on hand and at some gas stations that charged steeper fees for credit cards. My credit cards gave rewards, and at least in my case, made it a lot easier to track my spending than cash or debit did.

    Now that I live in Taiwan, overseas fees render my credit cards and debit cards pretty useless, especially since many day-to-day places don’t take plastic. Bills can’t be automated and linked to a card (at least not by me with my low level of Chinese), and it’s just so easy to walk the cash to the corner store.

    I do look forward to getting back to my cards, though.

  9. Nick says:

    When asked about one of his secrets to success, Warren Buffet replied “Stay away from credit cards”. Although I agree, I still use my credit card as I find its flexibility difficult to avoid and I pay off my full statement balance every time. But I also found myself racking up rather large balances that I didn’t have to. Also, recently I found a large grocery store that does not accept Credit Cards, only Debit Cards (or cash). For this reason they’re able to give lower prices compared to other stores. So using both and a balance of both cards is optimal in my mind.

  10. I use both,
    Credit Card for making large purchase such as stoves, refrigerators or plane’s ticket as Card Credit card allows me to reverse or dispute charges.
    And debit card for most of my in-store purchases to keep track of my finances as all of my purchases are recorded in one spot.

  11. May says:

    I use a credit card to pay for everything (groceries, gas, airfare, etc.) I can to earn cash back. I pay off the balance every month. My debit card? I use that to withdraw cash from the ATM…sometimes.

    • TaJ says:

      What I really dislike is the fact that my bank can’t be persuaded to give me an ATM card that’s NOT also a debit card.

      When the bank is that eager to get something into my hands it does make me rather suspicious.

  12. @ndy says:

    I haven’t used a debit card in years.

    I use a credit card to pay for everything I can (gas, food, bills…) and I build up massive points. I’ve paid for 2 trips in the last two years with reward points and now have a credit score over 800.

  13. Andrea says:

    I use my debit card for almost all of my purchases. I know myself, and I tend to overspend when I have a credit card. I use my two credit cards for bigger purchases (anything over $100) so that I receive the rewards points. Otherwise, until I pay off my credit card debt (about 2k total – accrued in college), I will continue to almost solely use my debit card for bills and every day items such as gas, groceries, etc. The rewards are nice but unless you tend to spend a great deal of money every year, I would rather earn money on investments than take my chances in overspending on a credit card. Still, since I’ve had a credit card since I was 16 (age 24 now) I have a great credit score (728) which permits me from receiving awesome interest rates. For example, my interest rate on the car I’m about to buy is 3.65. Therefore, I think credit cards are essential to have, you just have to be careful and “know your spending habits.” If I don’t have money, I simply don’t go out. The joys of living on your own!

  14. Rheana Foster says:

    With a debit card you have you are in control. With a creditcard, you may think you are in control, but that is exactly what they(the company) want you to think. Also with all those “rewards” that they intise you with it becomes really tough. But I think Dave Ramsey says it best, when he explains that when you use a credit card you spend 15-18% more and you earn rewards of 2%, now you do the math!!

    • BT says:

      Exactly, I’ve yet to find a great rewards program for CC. I mean, 2% for gas purchases? Wow, $24 a year if you spend $100 a month on gas. I get plenty of airline miles traveling for work so I don’t need those. There is a reason why all these CC companies are so rich. Good for you if you really pay it off every month, but I’ll just use cash, I guess it’s a mental thing.

    • Brian says:

      Dave may say that, but I’ve yet to see proof that statement is true. I know for a fact that it isn’t in my case.

    • S says:

      If you’re an idiot and don’t pay off the card every month sure you will pay more. If you pay off the card every month that 1-2% is money you wouldn’t get with a debit card (unless your credit account has a good interest rate in which case it’s even dumber to give up the money right away)

  15. Amanda says:

    I have a checking account at ING direct so I let my money sit there for the whole month and use my 2% cash back Credit Card for all my purchases.

    I pay it off in full when the statement closes, and i get $25 checks in the mail from the CC, plus a little interest from keeping the money in my electric orange checking account a little longer. In todays days of minimual interest, every little bit helps

  16. Mike says:

    I use a rewards credit card because I’m not an idiot and I pay off my balance each month. Credit cards are awesome if you act like an adult and have some self control.

  17. Carolee says:

    I use Chase bank and I have an Ultimate Rewards Debit Card. I earn points *ONLY* if I use my debit card as a credit card transaction. If I select a “debit” transaction, I will not earn any points. My transactions are posted online immediately with either way that I choose to use my one debit card. I can get rewards such as cash that will be automatically deposited into my account.

    Therefore, I only use my debit card at places where credit cards are not accepted (such as COSTCO or when I need cash).

  18. justin says:

    For me it usually comes down to whatever is cheaper for the merchant.

    I can understand how someone in their early 20s may need good credit in order to start out and always using debit cards may negatively impact that strategy

  19. Christina says:

    Debit – almost all everyday purchases (gas, groceries, drug store, stuff for the house, clothes and shopping, etc). I always ask them to run it as ‘credit’ because my debit card gets rewards if I do it that way (but not if I use my PIN).

    Cash – coffee or lunch out with coworkers, bars, cabs/bus – basically ‘fun money’.

    Credit Card – major purchases (flights, hotels, rental cars) where I want protection or where they will put a hold on my money. Also large expenses for work, when I know it will take 2-3 weeks to get reimbursed.

    • Christina says:

      I meant to also say – my debit card posts purchases and credits immediately (5 min) while my credit card takes up to a week. I check my balance almost daily, so if a charge hasn’t come through yet I don’t always remember that I should account for that money spent. That’s the other main reason why I don’t use my credit card for every day purchases.

  20. Aaron says:

    I only use my credit cards for purchases, and budget the amount I spend on it. Then I’m able to pay it off in full each month.

  21. ALAINA MILLS says:

    I use both:

    Credit – for Gas & Groceries. I pay the bill in full semi-monthly. I earn the most rewards for Gas & Grocery purchases and usally redeem them monthly for restaurant gift cards.

    Debit – for all bills (most withdraw automatically),every purchases, & atm cash withdrawal.

  22. BT says:

    I don’t know how you people do it. It would be too tempting to overspend on my CC and not pay it off. I use cash or debit for everything including bills. I use the CC for big purchases or deposits on hotels and rental cars, etc. I have enough bills to pay as it is, the CC would just be one more “bill”. I’d rather not bother with it, just use debit.

    • Bryan says:

      I agree. I would be checking my charges everyday to make sure that I didn’t spend “gas money” on a dog food or vice versa. And I didn’t really see anyone mention this, but I’m married. So I have two cards linked to every account. I’m a saver, and she is a spender, so I couldn’t imagine what kind of damage she would do if we used the credit card as primary method of purchse.

  23. Sarah says:

    I get 10% of $100 on my checking account every quarter rewarded, so I use my debit card for that and also to get cash back. I also use it at places that give you a discount for using debit or cash. Otherwise, I put everything on my credit card so I can get points towards free Target gift cards and pay it off in full twice a month.

  24. Mike says:

    I do not carry a credit card, and rarely use my debit card. In fact, the only thing for which I regularly use my debit card is gas.

    I go to the ATM every Sunday to get my “allowance” out for the week. This money goes towards groceries, eating out for lunch, and normal weekend activities.

    I also put $50 in a box in my closet after each ATM visit. This is my “fun money.” I like to let it build up for a month or so and then do something out of the ordinary budget.

    I have used this budgeting method for several years now, and have dialed in what my “allowance” should realistically be. When that money is gone for the week, I am finished spending for the week. Simple as that.

    And I would be willing to bet that I spend far less (primarily using cash) than any rewards plan could pay me for using a credit card!

  25. Shanna says:

    I use my credit cards for most purchases and have for years, to build credit. However, that may be misleading because I have the money in my checking account and go online and transfer it right over to pay off my credit cards. I ensure I don’t buy items, if I don’t have the money to pay for them (credit or debit). I use my debit card for small purchases (i.e. eating out), as well as the change from that purchase is automatically transferred over to my savings.

  26. Brian says:

    I use my credit cards almost exclusively to build up rewards and I enjoy the interest free loan (I pay in full each month). I use my debit cards primarily to get cash from ATM’s on the rare occasion I need cash. I don’t make many purchases on debit because I find I’m less likely to keep track of the purchases continuously.

    I have a different problem from many… I overspend when I have cash, but not on my credit cards.

    When there is an abundance of cash in my pocket, it gets spent, and I often can’t really remember what it is on. I’m more likely to buy random (and mostly wasteful) nick knacks, etc when I have cash on hand. Not so with my Credit Cards.

    I think it is mostly a mental thing for me. With my cards, I know I’m going to have a (single) large bill at the end of the month, so every time I pull it out to make a purchase, I imagine that bill growing and my mind often talks me out it. If I have the cash on hand however, my mind says “It’s only $x dollars. Go ahead.”

  27. Adi says:

    I never, ever use my debit card, because there is no point. I use my credit card as though it is a debit card, by paying it off and receiving rewards to boot.

    If you pay your credit card in full every month, there is no need for a debit card, in my opinion.

  28. Kevin J says:

    I’m 22 years, 1 year removed from college and have been using credit cards since I turned 18. I use my AMEX Blue Cash card for everything possible. On the anniversary of my card my cash back gets credited to my balance.

    When I graduated from school, I went out and financed a car. Since I had been using credit cards (and paying them off every month in full) since I was 18, I had built up a very nice credit score and got 6.39% for 48 months with no prior financing history. One of my colleagues had never used a credit card before and tried to get financing for a car and her interest rate is now around 10%. We paid the same amount for our cars and our payments are the same even though my term is 48months and hers is 60. Just goes to show how useful credit cards really are!

  29. Bryan says:

    For those who use their credit cards and pay it off at the end of the month, how do you ensure that you don’t overspend for certain things? I mean, I’m sure I could do it, but when I say that I only want to spend $250/month on groceries, that’s what I want to spend. With my said way of purchasing everyday, if I have money leftover at the end of the month, then I can either let it sit and buy an extra large steak that next month, or transfer it to savings.

    • Kevin J says:

      Credit cards make it even easier to track your spending. You never have to tally receipts or keep a check book; you just log online and look at what your spending and in what areas. I “tag” my spending with a little note on my online account to ensure I know if it is a legit expense. This takes 5 minutes a week and gives me piece of mind that I’m not getting my identity stolen or worry about carrying cash everywhere I go.

    • Honey says:

      @ Bryan, the best solution I have found is not to let my boyfriend go grocery shopping unaccompanied (or, most of the time, even accompanied!).

    • George says:

      Speaking just for myself, the actual means I use to pay for things is basically irrelevant. Every time my salary changes, I sit down with a spreadsheet and figure out how much is left after subtracting fixed monthly expenses and transfers to savings from two paychecks, divide that by two and that’s how much I have to spend every two weeks (gas, groceries, fun, whatever). I just track that number whether I pay with cash, credit, or debit and don’t let myself go over.

  30. Bryan says:

    Although I have both, I alway my debit cards for everyday purchases. I only use my credit cards for big purchases that amount to over a couple of hundred of dollars. But I have my reasons for this method.

    I kind of made an electronic “envelope system” by having multiple debit cards for different types of expenses (spending money, gas, groceries, ect.) I literally write out what the card is for in the signature block to avoid memorizing them by numbers. When I get paid, I have automatic transfers in place and all of my funds trickle down to their allotted cards. It may sound complicated, but with I never go overbudget and if I think I near the bottom of the account, I just tap into my accounts using my mobile app on mt Droid.

    Another reason why I don’t use the credit card often is because to me, the rewards points aren’t that big of a deal. For debit purchases, I receive 1 pt (3,000 pts = $25). For credit card purchases, I receive 2 pts unless I make a special purchase throuh USAA’s Membershop program. To be honest, I don’t even know how many points I have, and I’m not really that strapped for cash or ways to enjoy my money that I need to check. I smart with my money, but I certainly don’t sweat the instances in life like paying extra money for a rented movie per one of the previous articles written on the site.

  31. John says:

    I use my credit card for about %90 of all of my purchases. Basically unless its <$10 or the place only accepts cash I'll use my card. Why not? I get good stuff with the points I earn and I always pay the whole bill off each month. My debit card is basically only used a few times a year when I need cash and I don't want to get hammered with the bank fees for not using one of their own ATMs so I'll go to a Wal-mart or something and get a pack of gum and use the "cash back" button to get $40 or $60

  32. Johanna says:

    I never use my debit card. I get more interest on my savings than my checking, and the debit pulls from checking. Rather than have to keep real close tabs on what’s in there, I just use my credit card. I pay it in full every month and it’s all in one place. Easy to keep track of, and see how much I’m spending, and on what.

  33. Tim says:

    I’d say I’m about 50/50. Everyday spending goes on the debit card (ING Direct, which currently is offering their own cash back promotion) This includes coffee, groceries, gas, meals out, entertainment, etc. I liek keeping this on the debit card, because it limits my spending. If it’s not there, I can’t spend it.

    My other purchases (travel, gifts, big ticket items, emergencies) go on my credit card. I like having the perks (travel insurances, extended warranties, rewards points, etc.) AND the option to carry the balance over if I choose. More often than not I’m paying it in full, but I like the option.

  34. Theresa says:

    I only use my credit cards, so that I’m only paying one bill a month from the checking account. Occasionally, I do grab the debit card by mistake (they’re both blue), but I keep better track if it’s all on the credit card.

  35. Amber says:

    The only time I ever use my debit card is at Costco, who doesn’t accept credit cards. Otherwise, I put work expenses on my airline rewards card and everything else on my cash rewards card. Of course I pay everything off in full at the end of the month (automatically).

  36. Nick says:

    I always use a credit card. I pay it off in full every month so I don’t have to worry about paying the unsightly interest that card companies are charging. I would say that i’m building up my credit but the real reason is building up rewards points!

  37. Liza says:

    After finding out that I quickly overspend on my credit card, I actually froze it (in my freezer) for a year. During that year I was able to pay off the debt on it, and save for a hefty down payment on a nice and fairly new car (best reward ever!)

    I pulled it out of the freezer in May to help over the summer with expenses that I couldn’t plan on, and I’m still spending more than I’d like, but I’m being much more responsible with it.

    Right now, I use cash for everything except my bills; the ones I can auto-pay on my Credit Card I do and the ones that won’t let me use a credit card (such as student loans) are directly paid from my checking account.

    Cash helps me visualize my budget and its rewarding when I get to the end of the month and realize I have extra money that I can choose to do with as I please.

  38. Jubilance says:

    I use my debit card mainly for everyday purchases.

    I pull out my credit card when I’m making a larger purchase & i don’t want the hold against my checking acct; or when I want the consumer protections, like with rental cars or extended warranties on electronics.

    I’d like to eventually move all of my everyday spending onto a rewards CC, but I’m not quite there yet.

  39. Tristan says:

    I don’t ever use my debit card (or cash for that matter) because I can earn cashback and keep track of all my spending in basically one place. Of course this only works if you pay it off in full each month.

  40. Angela says:

    I use cash or debit. I gradauted college (loan free) and just started working – I want to avoid debt at all costs. My biggest expense each month is rent (living in a city) – beyond that, I’m keeping costs low so I can save as much as possible.

  41. Royce says:

    The wonderful worth of a credit card!
    online they can be used and if someone steals the numbers and charges your account the bank will give you your money back. debit cards most often no.
    also credit cards give rewards points that you dont get with a debit card

    but the main downfalls that credit cards have are their need to be paid off and the lack of continuous use over seas. many credit cards have limits on monthly usage when overseas.

    debit cards bull directly from your checking account and they can be used unlimitedly while over seas with most banks when notified unlike credit cards which even when notified some still limit usage to 3 times per month.

  42. George says:

    Credit card 1 – pretty much everything, since I pay it off every month (attempting to switch to paying it off every two weeks)
    Credit card 2 – autopays a small number of monthly bills to keep it active
    Debit card – used only for places that don’t take AmEx and one or two monthly expenses that I set up before getting the credit cards and haven’t switched over yet

  43. Lisa Morosky says:

    I avoid credit cards at all cost. Been there, done that, learned the overspending lesson. I’m one of those types that needs consequences, which is why if I use a card I’ll use a debit card. The consequence? It’s my money that’s leaving my account at that very moment. I don’t have the option to defer payment. For me, using debit cards over credit cards is about personal responsibility and always being aware of how much I’m spending and where.

    That said, I do have some credit cards that I use when I don’t feel comfortable giving someone an all-access pass to my bank accounts – like when I go to a hotel, or travel internationally.

    Regarding rewards programs: that’s not enough of a driver for me to use credit cards, because both of my debit cards offer rewards (USAA is awesome).

  44. Stu says:

    Debit card – normal “go-to” card for daily purchases. This card is the main card that I use.

    Credit card(s) – monthly bills are scheduled for auto-pay, which helps build extra points/rewards on my cards and lets me pay one “bill” instead of each seperately. One credit card is solely dedicated to purchasing things online.

    I have no debt and pay off any/all credit card bills monthly to avoid interest. Most important monthy bill: Pay yourself first.

  45. Honey says:

    I use my credit card for day-to-day purchases and pay it off in full every month. The main reason I do this is because I tend to do the grocery and pet shopping for both my boyfriend and I, and I don’t make enough money to pay both our “halves” so I charge it all and then get his half before I pay the credit card. Plus I get the rewards as if I had spent all the money, when really it was for two people!

    I use my debit card to withdraw cash and that’s pretty much it. I do have some things on auto-withdrawal out of my checking (student loan payments and the electric bill), but I believe it gets routed through the account number and not the debit card number.

  46. TaJ says:

    I use credit cards as charge cards (ie, pay off the balance in full every month). I don’t budget too tightly because I’ve lived well within my means for years. A decade of this has given me a sterling credit score so I can pretty much have my pick of rewards credit cards.

    I don’t use debit cards, at all, ever. I don’t believe debit card agreements are worth the cheap paper they’re printed on in terms of fraud protection, etc. The fact that it’s real money taken out immediately is exactly why I don’t like them. The fact that I’m eligible for debit cards that pay better rewards than the credit cards I use is not, and is unlikely to ever be, sufficient to overcome my distrust of them.

  47. Kat says:

    I put most of my everyday purchases on my debit card, except for gas, which I put on my credit card. I commute pretty far to work, and I never want to worry about what my checking account balance is before filling up. I pay my credit card off in full every month and enjoy the rewards points!

  48. Rebecca says:

    I don’t think I use the debit card and my credit cards differently. I balance all of my accounts every other day. I enter in all of my credit card purchases into my budgeting software, so it updates my budget values. I do put some of our reoccurring bills on my credit cards and then pay them off at the end of the month. I have an Costco Amex and I like to get the money back at the end of the year.

  49. Jason says:

    I pay everything off, so I like using credit cards for everything for the benefit of rewards and budgeting (i.e., I get paid twice a month, and one of those checks is primarily rent, while the other is for bills, credit card expenses–i.e., most purchases–and savings).

    I made the mistake of just using a debit card until I was 21, because I had a decent enough balance in my account and a job, so I never felt the need to get a real credit card. Unfortunately, I learned the downside of this the hard way as I waited a bit too long to establish credit and it made things a bit difficult in my early 20s… but those days are long past now.

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