3 Reasons Debit Cards Beat Credit Cards

[keepinitreal]

October 9, 2010

Debit cards get absolutely no respect.

Talk with enough personal finance experts and you can collect a laundry list of reasons why credit cards are better than debit cards. For some consumers, a credit card is better than a debit card, but if average credit card debt statistics are any indication, many consumers would be better off using debit.

You can't fall into the debt spiral with a debit card. Credit cards offer all sorts of great perks and rewards, some of which are matched by debit cards, but they are also a gateway into a world of debt. If you can't pay off a credit card bill in full each month, you're paying double digit interest rates. Those double digit interest rates are liable to keep you in debt for a very long time and it is too high a price to pay for those perks and rewards. Getting 1% cashback on your purchases and paying 18.99% in interest charges is not a good deal.

Some debit cards offer cashback. If you look hard enough, some debit cards are offering cashback just like credit cards. PerkStreet Financial offers 2-5% and ING Direct, for a limited time, offers cashback on their Electric Orange debit card. If cashback is the only reason you're using a credit card, consider looking around for alternatives.

You are always approved. Since a debit card is merely another way to access your own money, no credit is involved. Your credit score takes a hit with every new credit card application, whether or not you're approved. You don't build any credit with a debit card though, as it's off the credit radar.

When it comes to the things that matter, such as fraud protection, debit and credit cards are more similar than they are different. The crucial difference is that with a credit card, you can spend money you don't have (which is exactly what they want) and pay for it for quite a long time.

http://consumerist.com/2010/10/3-reasons-debit-cards-beat-credit-cards.html

[Goteki45]

I read the responses to the author's story on consumerist, and if I didn't know better I would swear that the people attacking the use of debit cards and the author work for the credit card companies. I have a pre paid debit mastercard, and I love it, love it. It won't allow me to go into debt!!! If I would have had this puppy from the very beginning, I wouldn't be in the mess that I am in right now. Since I can only spend my money, I now have a new respect for every dollar I have. I didn't really respect money when I was using credit. Now since it is my money that I am using, I am accounting for every dollar spent, and I am tracking how it is being spent. After the bankruptcy, I will more then likely re establish credit, but I will still use my pre paid debit mastercard as my sole card. I will never go back into consumer debt again. Lesson learned the hard way.

[gamama]

hey...i like my debit card soooo much better these days!

1. I'm able to know exactly what i can spend
2. i'm getting a cash-back reward of 3 % back on purchases
3. i don't owe anyone :-)

[goodyphilips]

Thats true debit card is always better than credit cards because doing so restricts you from over spending. but the biggest disadvantage associated with it is that you might not build your credit scores with it.

[AngelinaCat]

We have debit cards through our CU. We almost always use the credit side of the card, rather than the debit.

With the credit side, you can contest the transaction up to 60 days after it is done. With the debit side, the money is drawn from your account and is gone. You have very little recourse.

Consumer Advocate, Clark Howard, hates what he calls the "fake credit cards"--the debit cards, because of people using them thinking that they ARE credit cards, and all of a sudden their accounts are wiped out, and there is no recourse.

But when people truly understand how they work, they are a valuable tool.

[btbeme]

Thats true debit card is always better than credit cards because doing so restricts you from over spending. but the biggest disadvantage associated with it is that you might not build your credit scores with it.

A credit score is actually a debt score. Every facet of your credit score has to do with debt - the amount you have, the amount you pay, how long you have had it, how much more you can have, etc. To put it another way, if you were to pay cash for your expenditures for the next seven years, you would have NO credit score. Nada. And yet you would be 100% debt free. Going into debt is a big price to pay for a credit score.

Combined with a solid savings plan, the cash-in cash-out lifestyle is truly awesome and empowering. Sure, it take some real effort to get there, but you can do it! You can! Honest, you can!

A prepaid card and many types of debit cards (Paypal, etc) allow you to have a larger daily limit for large purchases such as airline tickets, etc that a regular debit card may not allow. But, it is still a cash payment of sorts.

And, yes, you can save enough to pay cash for a car (buy a 3-4 year old car after someone else paid the 60-70% depreciation over that time), and even a home (or at least a large enough down payment that the bank will not hesitate to loan you the rest).

[blockhead]

The problem with a debit card especially if used online is that it can be used fraudulently and the charge will show up on your bank account and perhaps cause checks to bounce and fees to be added. The bank in my case said it can take 5 days to investigate it.

With a credit card (I use a low credit limit one) the fraud charge doesn't cause checks to bounce and there are more protections typically in place.

[goodyphilips]

A credit score is actually a debt score. Every facet of your credit score has to do with debt - the amount you have, the amount you pay, how long you have had it, how much more you can have, etc. To put it another way, if you were to pay cash for your expenditures for the next seven years, you would have NO credit score. Nada. And yet you would be 100% debt free. Going into debt is a big price to pay for a credit score.

Combined with a solid savings plan, the cash-in cash-out lifestyle is truly awesome and empowering. Sure, it take some real effort to get there, but you can do it! You can! Honest, you can!

A prepaid card and many types of debit cards (Paypal, etc) allow you to have a larger daily limit for large purchases such as airline tickets, etc that a regular debit card may not allow. But, it is still a cash payment of sorts.

And, yes, you can save enough to pay cash for a car (buy a 3-4 year old car after someone else paid the 60-70% depreciation over that time), and even a home (or at least a large enough down payment that the bank will not hesitate to loan you the rest).

Yes you are right to have a credit score, you need to have some credit so to say. But having a good credit score always helps,especially when we apply for mortgage loan.I don't know if living debt free for quite a bit of time would be counted as a plus when you seek mortgage loan, some thing most of us do since it is really expensive to build a home.