The Credit vs Debit Debate

It?s a question you probably get asked at least once a day??credit or debit?? If you?re like most?people, you carry both types of plastic in your wallet. However, what you might not know is that?both forms of payment come with a certain set of pros and cons. To help you decide what makes?the most financial sense for you, in the credit vs debit battle, I?ll break them down:

Credit Cards

Debit Card Pros

Living within your means is automatic: You?re spending your own money that you already?have, which means you don?t have to worry about paying interest. (The only exception is if?you overdraw your account. Make sure you have told your bank you do not want overdraft?protection.) You typically spend less: That?s right ? debit cards can make you more frugal. When using a?debit card instead of a credit card for purchases, you?re likely to focus on spending less. (You?also tend to spend less when you use cash instead of your debit card ? and even less when that?cash is a larger bill.) Late fee free: Without a bill, you?re also without a due date ? meaning those pesky late fees?won?t be an issue.

Debit Card Cons

Fewer perks: Perks like miles have actually picked up a bit on debit cards, but they?re still greater?on credit cards. Overdraft fees can add up: If you don?t opt-out of overdraft protection, fees for spending more?than you have can add up. Another reason to just say ?no.? Administrative hassles: If someone steals your card and makes purchases on it, you?ll be able?to get that money back. However, it can take a while ? sometimes a week ? and when that money?is needed for paying bills and household expenses, you can end up incurring more expenses just?to keep on top of things until you?re reimbursed. Account blocking: Places like hotels and gas stations will often hold a certain amount of money?in the case that something were to happen. When you use a debit card for that hold, the block?can make it tough to spend your own money even if you have plenty.

Credit Card Pros

You?ll have a track record: Building up a credit history is key, so when it comes time for you?to take out a home or car loan, the lender can decide if you qualify and what kind of interest to?charge you. Rewards: From frequent flyer miles to cash back, credit cards often offer consumers excellent?rewards just for using their card. However, it?s important to remember to watch your spending,?still ? research shows people tend to spend more on rewards cards than those without. Consumer protection: If you are legitimately dissatisfied with a purchase or a service, and?would like to withhold the payment, your issuer will generally stand by you. Zero liability: If your credit card information is stolen and there are unauthorized transactions?completed, after you report the theft you don?t have to worry about not having access to your?funds while the bank sorts out the problem.

Credit Card Cons

Interest: This is a big one. If you don?t pay your full balance each month, you?ll rack up?interest charges ? 29% is not unheard of. That?s an expensive ouch. Late fees: If you don?t pay your bill on time every month, you?ll not only have to pay a fee, you?ll?also take a hit on your credit score. Potential to spend more: When you use your credit card, it can feel like it?s not ?real money.??Customers tend to spend more on their credit cards than they do on their debit cards or with?cash, and uncontrollable spending will quickly turn into excessive debt. Credit vs debit is one of the great financial debates but as outlined above, both have their?benefits?and their drawbacks. To find out what works best for you, take a look at your?financial picture and remember the golden rules of not overspending. If you?re planning on?using a credit card, pay your bill on time?and in full?to avoid late fees and interest charges.

2 thoughts on “The Credit vs Debit Debate”

  1. Prudence Debtfree

    Although it’s true that individuals can have the advantage of earning points through credit cards, it’s important to keep this in mind: Credit card companies can only offer points and other rewards because of the HUGE profits they make through people who are stuck in the minimum payments cycle of debt. You have to ask yourself if you really want to be rewarded by a system that actively markets debt.

  2. I agree, the “con” of snowballing debt and interest outweighs all the pros.
    Responsible card use is like responsible drinking. I don’t drink and drive, and I always pay the card off in full each month.
    The studies that conclude that credit card users outspend cash are typically flawed for two reasons. First, I have yet to see a real world study, i.e. one that uses adults and monitors their spending. The studies seem to always use college students and observe how they spend a $100 gift card vs a $100 bill, or some other trivial number. Never a family with a real 6 figure budget.
    The second flaw follows from the first. A real study wouldn’t just compare paper to plastic, it would compare the pay-in-full group to those who carry debt month to month.
    In the end, if one budgets and stick to it, saving first, paying the bills, and never spending more than what’s left, the credit crd is just a tool, not the plastification of evil. My 2% reward card deposits directly to a 529 account. $23K last I checked. It will be great to pay for a full semester of my daughter’s college with the two million pennies rebated over the last decade and a half.

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