Debit card versus credit card: Several points to consider

[babylonsister]

Debit card versus credit card: Several points to consider
Credit cards offer more legal protection; debit card use will not affect your credit score

By Joan Goldwasser Tribune Media Services

January 3, 2010


While it's true that debit card users spend only money they have, they also have fewer legal protections than credit card users.

Besides, the cards carry significant costs for the not-so-careful. Overdraft fees from the largest banks average $35 a pop, which rivals credit card over-limit and late fees. (New federal regulations effective July 1 will require banks to get your permission before enrolling you in an overdraft-protection plan.)

And while it's true that credit cards can help you run up huge debt, many users pay off the balance every month, avoiding interest charges and taking advantage of a grace period before they pay the bill. Surveys show that more than 40 percent of credit card holders pay their entire balance each month.

So which card should you use when?

A lot depends on your attitude toward credit. If you'd rather pay as you go, a debit card is your best option. But before you decide, consider the pros and cons of credit versus debit cards:

more...

http://www.chicagotribune.com/business/yourmoney/chi-tc-ym-credit-v-debit-0103jan03,0,1128101.story

[Mojambo]

1. I have one debit card and that's all I'll ever have.

If I don't have the scratch, I'm not buying.

[Warpy]

7. Same here.

Everything's paid for and I sleep soundly at night.

[tonysam]

8. +1,000

No credit card shit for me--ever.

[Fleshdancer]

12. same here

I broke my credit card habit 6 years ago and I'm much happier because of it.

[OnceUponTimeOnTheNet]

21. Ditto. No credit cards ever again in this house.

[crazyjoe]

44. you should use a credit card for travel, I would not go around

renting cars and hotel rooms and giving all those people access to your checking account. It's like passing out blank checks.

[Hepburn]

48. Debit cards only...

...one business and one person. No credit cards...PERIOD.

[Ron Green]

2. My wife and I have 3 debit cards and one credit card.

We use Quicken to keep track of all our accounts, so both cards work well for us.

[TexasObserver]

3. Debit card = money you have. Credit card = money you don't have.

[Skittles]

15. not true

I use a credit card for several things I DO have the money for but sometimes it makes more sense protection-wise to use credit as opposed to debit

[flying rabbit]

25. Yes, that is how I use mine.

I keep track of what is owed so I don't have any surprises.

[FLDCVADem]

17. I disagree completely

we pay our card off in full every month, we get cash back on every purchase, and there are no annual fees.

For us, it makes good sense to use our credit card.

[Trekologer]

18. That's not necessarily true

A credit card could be money you have, just not with you. One also offers several protections, such as your actual funds being isolated from the account. Should a merchant post an transaction in error (such as adding an extra 0 or two to the amount) or a thief get a hold of the card number, its not your money that's being played with. If you have a dispute with the merchant (item breaks and they won't fix/replace it, wasn't what you expected, you paid a deposit then the good or service was never delivered) not only are you not required to pay the disputed amount but the card company takes care of the dispute. You can't do that with cash and often not with a debit card to the same extent.

The key is to be smart when using credit cards.

[crazyjoe]

45. +1 absolutely agree

[Statistical]

41. Utterly simplistic view.

I have $1283.58 in checking and my credit card balance right this second is $872.89.

So what is that about money you don't have.

With a CC I don't need to worry about:
a) having a merchant make a mistake and reduce my available cash.
b) Have a gas station do a pre-authorization for $50, $60, or even $100 when I am buying $30 in gas.
c) Have bank play games if overdraft my account $12 but they re-organize everyhing to collect 5x$39 over limit fee.

Nope. Keep cash in checking. Use the CC. Collect some points. Pay CC with money in checking. Too easy.

[FLDCVADem]

4. We have two credit cards

One that we use for almost everything (paid in full each month) and a second one that sits in our lockbox, but is used for recurring monthly bills that come (gym memberships, etc). This one is also paid in full each month.

[Warpy]

5. One way to protect yourself with a debit card is to keep it

on an account with a balance whose loss won't wipe you out. Banks will send you emails to tell you when that account is below a pre determined rate so that you'll always know when you need to move a little money around to cover upcoming purchases. That's what I've done and it's worked out well.

I got rid of credit cards when they started charging junk fees. Silly me, I thought 18 3/4% interest should have been enough for them.

[flvegan]

6. I have two credit cards that I hardly ever use, and one debit card.

When I do charge something (like to extend a warranty or something) I pay the bill off entirely each month.

[Nikki Stone1]

9. As long as you don't charge more than you can pay off every month, a credit card is safer provided

they don't start adding yearly fees for use of the card.

[BeFree]

10. y'know

If Obama hadn't saved the banking system from collapse, those cards probably wouldn't be working today.

[girl gone mad]

34. nonsense.

[crazyjoe]

47. Oh please...

[NYC_SKP]

11. Get a credit card with no annual fees. Pay it off in full before due date, every month. Period.

To build up your credit and to be able to book flights, hotel, rental cars, etc., a credit card is indispensible.

You don't, however, need to carry a balance and pay interest.

Just pay the damned thing off every month.

In full.

No exceptions!

:P

[Berry Cool]

31. You don't need a credit card to book flights, hotels, rental cars, etc. A debit card will do.

Many of us here on DU have done it, and yet people keep posting to say no, you can't do that! It's a little crazy considering the number of us who have done it and keep repeating that we have done it, that people keep saying "It's impossible; you cannot do that without a credit card." Uh, yes, you can, and we are proof.

True, having a debit card won't help you build up your credit. But if you don't give a damn about building up your credit, and you're not in a situation requiring you to pay for things you can't afford to pay for in full, you don't need one.

Of course, if you do book flights, hotels, rental cars, etc., with a debit card, you usually need to have a certain amount on the card to cover a deposit or sometimes the entire cost of the purchase. Other times you need to be able to accommodate a temporary hold of a certain amount of funds. But if you can do that, you're fine.

[Ruby the Liberal]

13. I don't EVER use my debit card online

With my creidt card, I can challenge the charge. No such animal with a debit card. I only use debit for services rendered (gas, restaurant, retail) and not for things "to be seen" or ordered.

[mike_c]

19. that's not true, at least in my experience....

A couple of years ago someone stole my debit card number while I was on a trip-- I presume someone who rang up a charge on it-- and I returned home to find $500 of charges for purchases that I didn't make. One call to my credit union refunded every dime.

[regnaD kciN]

20. Same here...

Except, in my case, the debit card itself wasn't stolen. Somebody got hold of my card information (maybe they found a sales slip a store had discarded?) and mail-ordered a lot of stuff. My bank (this was even before I went with a credit union) refunded the charges once I filed a formal police report.

[mike_c]

24. that's exact;y what happened to me....

Sorry, didn't mean to give the impression that the card was stolen-- only the information was taken.

As far as legal protections go, I believe that using a debit card as a credit card-- mine is a Visa card as well-- gives you all the usual legal protections while maintaining the "live within your means" limits of spending only what you have.

[Ruby the Liberal]

36. I am not talking about fradulent activity

I am talking about being dissatisfied with a transaction. You can challenge that on a credit card, but not on a debit card. If you don't believe me, call your bank and ask.

As far as the card being imprinted with "Visa" or "Mastercard", that is only a processing gateway. Credit cards and debit cards are two completely different animals. Visa and MC just opened up their gateways for processing (for a fee) to go through them if the merchant prefers.

On that note, if the merchant runs your card as a debit, there is a minimal fee to them (~1%). If they run it as a credit card, they pay more (4-5%).

Disclosure -- I work in banking.

[mike_c]

53. ah-- thanks for clearing that up....

I didn't understand the distinction between protections against fraudulent activity and consumer protections.

[Ruby the Liberal]

54. It was my bad for not explaining what I was talking about

:hi:

I am glad you brought up fraud as that is ALWAYS covered as it is a crime as opposed to a mere dispute.

[proud2BlibKansan]

50. Same here

It took 10 minutes to get every dime back in my checking account. Some banks do make you wait though so this is a good feature to ask about when opening up a new checking account.

[Ruby the Liberal]

14. I don't EVER use my debit card online

With my creidt card, I can challenge the charge. No such animal with a debit card. I only use debit for services rendered (gas, restaurant, retail) and not for things "to be seen" or ordered.

[uppityperson]

33. I discovered that a while back, debit card, even if says VISA, doesn't have the protections

debit card is in lieu of writing a check, same protections as a check (minimal) but takes the money out of your account right now.

[Ruby the Liberal]

37. VISA/MC isn't about protections

they are just gateways that give a merchant options on how to process the transaction. If they run a trans as a debit card, they pay a fraction of the fees that running it as a credit card costs them.

Where the protections come in is from the issuer. If the issuer removes the charge from a cash account (debit card), then there is no protection of this nature. If the issuer holds the charges for you to pay later (credit card), you have some leeway to challenge purchases.

I am not referring to fradulent activity (as noted above), only issues with merchants that you wish to challenge.

[proud2BlibKansan]

51. It actually depends on where you bank

There are different protection programs available.

[regnaD kciN]

16. One way to avoid those "overdraft fees from the largest banks"...

...is to not have your money in "the largest banks." Switch your accounts over to a credit union and get their debit Mastercard or Visa. BECU (my credit union) doesn't charge overdraft fees, period -- simply notifies you you're overdrawn, and requests you make a deposit to correct that.

[Mojambo]

22. That's truly the best advice. Get your money out of big banks

Credit Unions FTW.

[elocs]

23. The Truth About Credit Card Debt:

http://moneycentral.msn.com/content/Banking/creditcardsmarts/P74808.asp

* 23.8% of American households have no credit cards at all -- no bank cards, no retail cards, nothing.
* Another 31.2% of the households the Fed surveyed paid off their most recent credit card bills in full.
* So together, the households that owed nothing on credit cards equaled 55% of the total.

It also states:

* In reality, most Americans owe nothing to credit card companies.
* Most households that carry balances owe $2,000 or less.
* Only about 1 in 20 American households owes $8,000 or more on credit cards.

[NNN0LHI]

26. Getting used to using anything other than cash for everyday purchases is a trap

Debit card, credit card. Don't make any difference. Plastic is plastic. Lot harder to peel off the Benjamins than whip out the card. Ever looked at some gizmo if some drawer that you purchased a couple of years ago and never used and wondered to yourself, "Now why in the fuck did I buy that?" The answer is plastic. Chances are you wouldn't have bought that unused gizmo if you were using cash. And if you had you would have likely returned it and got your cash back a long time ago.

Want to stick it to the man? Use cash. You will spend less and actually need what you buy. Its a win-win situation.

Don

[FLDCVADem]

27. Your opinion and you're welcome to it

But you really don't speak for everyone that uses credit cards for every day purchases. I'm still careful with what I buy because I know it has to be paid for at the end of the month.

[Recovered Repug]

32. So you use cash for all of your purchases?

You don't use checks at all? Really what is the fundamental difference between a written IOU (a check) and swiping a debit? No "real" money is exchanged, the card is just more convenient.

[Nay]

38. Credit cards vs cash/debit should be decided by a person's personality.

You know whether you are cheap/frugal or whether you easily overspend. Tailor the payment method to yourself -- cash only if you get carried away with plastic, and cash plus cards if you're a cheap miser like me. I use the cc for gas, online, and some retail, cash for most stuff, and debit very occasionally. I pay off the cc every month without fail. I have no problem with buying stuff I don't need just because I have a cc in my hand, but you can bet that if I had that problem, I wouldn't own a cc. It just comes down to knowing yourself.

I tend to use cash a lot, and something I read here on DU is making me use more of it -- the idea that cash use takes away the profits of the cc companies and banks. I like that, so I now am using cash more than ever. I buy gas with a cc and try to use cash/check for everything else.

[rapturedbyrobots]

43. for a culture that is

all about personal responsibility. it sure is easy to blame away your own mistakes on a little piece of plastic and a big bank. its nobody's fault if you can't keep your impulses under control. the argument could be made that banks shouldn't charge usurious rates on those impulse purchases (and sometimes truly necessary charges like medical bills, etc...). but avoidingg credit cards is NOT sticking it to the man. the smart way to stick it to the man is to get a card with no annual fee and good rewards and pay off your balance every month. you get something every month...they get nothing in return.

[Name removed]

28. Deleted message

Message removed by moderator. Click here to review the message board rules.

[davidwparker]

29. just rec'ed it back -- at least to zero now

[Sultana]

30. Debit card fan

I've never had a credit card & I never will.

[tavalon]

35. I got in over my head and now I only use my debit card.

[Toasterlad]

39. Me Too. I Learned the Hard Way How Far Credit Card Companies Will Go to Get You Under Their Thumbs

I use a debit care for nearly everything, and only make one small purchase a month on my two credit cards to ensure that I get a statement and that there's nothing unauthorized on there.

[JHB]

40. I continue to use a credit card even though I pay it in ful every month.

I just prefer having that buffer between the rest of the world and my accounts.

[grace0418]

42. I just flew my husband and I to Hawaii first class to celebrate his 40th birthday. I used miles

accumulated mostly on miles credit card. I use the card for everything, and pay it off every month. The miles added up fast. Neither of us had ever flown first class and would never be able to afford it on our own. That alone made any headaches I ever had with credit cards totally worth it.

[Trekologer]

46. I see a lot of comments about using cash or a debit card to stick it to the banks

What many people fail to realize is banks typically make more money off debit card transactions. If your goal, in using a debit card, is to try to "squeeze" the banks, then you are failing.

Here's why: when you make a debit card purchase which is processed as a Visa or Mastercard transaction (called "signature-based"), the bank makes MORE on the transaction than it would if you used a Visa or Mastercard credit card. Now if your purchase is processed as an ATM card (called PIN based), most banks charge the consumer a transaction fee (ala using another bank's ATM). For a small transaction, such as your small convenience store purchase, this $1-$3 charge is MORE than they would have collected from a credit card transaction. The merchant (store) prefers for you to make the PIN based purchase with a debit card because the transaction cost is pushed off onto you, the consumer.

[Berry Cool]

49. My goal is not to squeeze the banks. It's to live within my means

and also not get played for a fool by the games banks play with credit cards. Right now they're even trying to punish people who pay off their cards every month. It's bull.

[Vinnie From Indy]

52. I have never been charged to use my debit card as a consumer.

I understand that there are fees if I use my card at an ATM that is not my bank's ATM, but I have never been charged a fee to buy groceries or other stuff using my debit card.