When we say debit in this article, we mean don’t just mean ATM cards, but any card which is tied to your checking or savings account. This includes debit cards which can be used like credit cards.
I’ve always personally thought that credit cards are better than debit cards. Here are some reasons why:
Bounced checks. Debit card users are hit with more overdraft fees — a lot more. Many consumers don’t realize that a bank will approve debit transactions even if they have insufficient funds in their account. In such cases, the bank tacks on a $35 overdraft fee. That means a $5 hamburger can easily become a $40 hamburger.
Controlling Spending. Some people argue that debit cards are a better way to control spending. Nope – if you don’t have enough money in your account, the bank will let you use the cards any way charge you an insufficient funds fee.
“Blocking” surprises. Paying for car rentals, hotels and gas stations with debit cards also can cause your account to be overdrawn, as retailers often withdraw more money than you’ve actually spent, then put some back later. It’s a practice called ‘blocking.” Car rental firms can actually block off hundreds of dollars extra, to make sure the consumer has enough in their account to pay for possible added charges. The blocked funds are never really transferred to the retailer, but they aren’t available to the consumer, either. Instead, they reside in a kind of financial limbo.
Run a few such transactions on a vacation and you might run out of cash and be unable to get money from an ATM, or be hit with overdraft fees. Blocking also occurs with credit cards, but it has no impact on consumers unless they are precisely up against their credit limit. Consumers who insist on using debit cards to pay for rental cars should reserve the car with a credit card and switch to debit when they pay in order to avoid checking account blocking.
Fraud protection. Federal law affords credit card consumers better protection than debit card users. Credit users’ obligation is capped at $50. Debit users can be on the hook for $500 if they don’t report fraud within two days of learning about it. In practice, both debit and credit users generally enjoy zero liability guarantees from their banks, but those generous debit policies can be changed at any time. Consumer protection under the law is a safer bet.
Fraud recovery. Getting money back in the event of fraud is much easier for credit customers than for debit users. When a criminal uses your credit card, all you have to do is refuse to pay for the fraudulent purchases. When a debit card is stolen, the money disappears from your account, and the burden is on the consumer to call the bank and get that money replaced. Anyone who’s ever logged online to see a zero balance or been denied cash at an ATM after an incident like this will tell you that is no small distinction.
Rewards programs. Such programs tend to be more generous to credit card holders than debit card uses, Consumer Reports magazine says.
Do what do you think? Still think debit cards are better? Leave us and comment and tell us about it!
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I’m writing to you about the article by Kristy Welsh about which is better a credit or debit card.
In personal opinion a debit is way better than a credit card. I have owned two credit cards in my lifetime. Both are unsecured credit cards! One is through Premiere, love it! The other credit card through Chase, hated it! I only took out $500 debt though Chase by the end of the year it went to 1500 dollars.
A $1000 just went to late fees and interest and extra fees on top of what I borrow that year. Anybody that is gone through credit card debt knows it is pain in the butt to pay off your credit card. You are never caught up because of interest,late fees and extra fees for going over your credit limit. If you close out your account you are charged for that as well plus making your credit score go down. Than you have to watch out if you have too much credit because that will make your score go down as well. You only suppose to use 30% of your credit limit on the card.
Also, when you decide to close out your account they charge you a fee and makes your credit score go down. If you tried to transfer your card to new credit card you will be charged a hefty fee!
Those credit cards that you mention with reward are a joke! They are pennies on the dollar! You pay for the rewards with higher interest rate! It is better to get lower interest rate with no rewards than get reward card that don’t nearly pay out with what you pay into the card.
Plus, with the credit card you have to worry about delivery time. It may take 7 to 10 days business day just to get your credit bill payment on time with the credit card company that does not include holidays or weekends! Unless you have a another credit card that has available credit your stuck with making payments through snail mail.
Now, the banks have overdraft protection plans! There is two different kinds of overdraft protection plans you can choose from. Some banks have three different overdraft protection plans.
If you have a checking account and saving account you don’t have to pay an overdraft fees for going under your balance! The remaining balance on your purchases will come out of your savings account.
If you have a overdraft protection with a line of credit, yes, you will have heft fees! That is because you are borrowing money from the bank until you pay back your fees and debt you owe! These over the line credit have no protection! You still have a bounce check even though you have overdraft protection in your plan. It is just temporary loan!
The debit card block out that you mention in your article is not true! It only applies if you don’t have enough money in your account. I never had a problem checking a hotel room out on my debit card or paying for gas for my car!
What happens is the banks put a hold on the account until it clears. If you only have $20 left on the debit card and went to get gas for $20.00 there are inadditonal fees deducted from your account for putting a hold on your account. The fees from the bank could be $8.00 which will make you go under your balance! This only applies to account holders that have $35 or less in their account!
To check out a hotel they put a holding fee on credit card or debit payment! It just case you wreck the room then the hotel takes extra fees out of your account to pay for the damages. Additional charges apply when you book out the room in advance! To hold the room may cost you $50 plus the regular rate! You are paying a security deposit plus the regular rate for checking out the room! The same thing applies to gas card, they put hold on the account just incase the debit card is a fraud or stolen. That is why it is important to read the find print.
There is more problems having credit card than a debit card. You have start up fees, maintenance fees,annual fees and additional fees if you make a payment by phone using another credit card. A debit card there is just a small fee for transferring you funds from one account to another. A small maintenance fee every month unless you have direct deposit or bank online than the fee is waived.
Yes, debit card is way better than credit card! It won’t put you in debt for years like a credit card. If people would just live in their budget they wouldn’t have problems with debt. A credit card was meant for emergencies only not for living beyond your needs!
I don’t think you’ve overcome my points about credit being better than debits, but it’s up to you.
The key reason debit cards are better than Credit Cards is that they don’t create debt. They don’t give the credit card company a blank check. If you only use a debit card on a checking account intended for that use, you can control what happens with it. The holds taken on hotel or rental cars are okay as long as they don’t hold it long after you’ve left. I have traveled a lot with a debit card and never ran into a problem. You seem to have bought into the myths about credit cards. Their contracts should be illegal, and their method of contract formation is illegal – they just get a pass by the regulators. Do a deal with the devil, you eventually get burned.
BTW, credit cards should not be used as an emergency account. That is the worst time to go into debt. Establish a money market account savings of about six months of expenses, then you can save money on insurance by raising deductibles and your emergencies are not so devastating.
Kristy,
Great article! I agree with your point about credit cards being better for you than debit cards for one very important reason…Your Credit Scores!
In this current environment, having high FICO credit scores are more important than ever. While some may think that going to a debit card to keep themselves out of credit card balance trouble (or maybe that don’t have a major credit card anymore due to their scores) will be good, that thought process is very short sighted.
Why? The credit bureaus don’t report your debit card activity. It is not unsecured debt, and unsecured/revolving debt is a major component of your credit score.
Besides all of the benefits you mention about credit card vs debit card, improving your credit score affects so many things in our lives besides loans, mortgages, and car loans.
Your insurance rates, utility rates, future or current employer job opportunities are all dependent on your credit scores.
Now, the problem that most folks have with credit cards is that they don’t manage them correctly and that is where they run into trouble.
Credit cards are an absolute necessity in this modern financial system we live in…I am not saying I agree with the “game”, but you have to know how to play and by what rules.
Mark
Credit cards are better then debit cards IF AND ONLY IF you pay the balance in full every month. If you can’t manage your money, then you should use a debit card or cash. Obviously summerbaby09 did not pay the balance in full and suffered for it.
I have had my credit card information stolen a couple times, and I am glad that I did not have the hassle to get my money back as well as the risk of bouncing payments because the cash was not there.
My preference is to pay for purchases with cash and ACH for utilities. I use a credit card when I make a purchase over the internet for safety, and I always pay it in full.