For ordinary expenses on a regular basis, I like the cash envelope system. Food, Gas, Entertainment, Blow. (Not cocaine.) If you know anything about data mining, you know the plus of cash: staying off the grid!

About merchant fees. They pay it for debit cards as well as credit cards, so by using a debit cards you aren’t saving them money.
If you use your debit card as credit than the fee goes to the Visa or Master Card company – depending on whose brand your card is. This is these companies business model – they get merchant fees on both debit and credit cards while banks profits from lending itself (or when people don’t pay, it’s banks that lose money, not Visa or MC).

If you use your debit card as debit then, unless I am mistaken, the fees go to the bank. Why do you think some banks offer high interest checking if you use your debit card for purchases a few times – they want fees.

So while by paying by check or cash you do save merchants money, you don’t do it by using debit vs credit. They’ll pay fees with either.

@TML – again, what you say is true “on the average” probably because more than half of the users carries balances. Like with most averages it doesn’t say anything about individuals.

The only thing I’d like to add about using credit cards to pay for everyday expenses is that you need to check how that credit card calculates APR. I just found out that 2 of my cards calculate it daily and that there is NO GRACE PERIOD on new charges. I was so angry when I found this out having just paid off all of my credit card debt and only used them to kept them active. I’m not sure what I will do with these 2 cards since my husband and I are trying to build a good credit score and don’t want to close them. Any suggestions?

One other thing as an FYI, some debit cards do offer rewards programs. My husband and I haven’t had to pay for gasoline in 3 months because our debit card rewards program has earned enough points to purchase gas cards.

Thanks again for all of your suggestions!

My personal experience has been that we only keep a CC for exceptional spending, like the occasional business trip or something from an online merchant. We also keep one from a merchant we buy clothing from, which garners us 10-20% off purchases and coupons for clothes we need to buy for our kids. We pay it off every month. However, there was a time we carried a balance.

I also used to drink more alcohol. Never to a “I’ve got a real problem” stage, but now I’ll have one or two drinks every week. Dealing with the headaches involved with hangovers or eternal balances, fees and interest payments just isn’t worth it. Now, we budget monthly and pay for some things with cash and others with debit. We check the debit categories a few times a month in Quicken to make sure they are on track, and adjust spending accordingly.

I’m sorry. That’s incorrect.

While I do agree that credit card companies sometimes do facilitate reckless spending, I feel that it is necessary to correct a few of the “common, generalized, accepted misconceptions” in your post.

Credits and debits are not as simple as additions and subtractions. In double-entry accounting, credits as increases or decreases to accounts depending on their type (e.g., assets or liabilities). The term ‘credit’ is more often used to describe the creation of a liability (i.e. purchasing merchandise on credit).

I suspect that your confusion that credits=additions and debits=subtractions originates from the misleading (but ubiquitous) use of the terms on a bank statement. When a bank debits your account, it is reducing its liability to you, the account holder. When it credits your account, it is increasing its liability to you. From your perspective, the exact opposite is happening. This is double-entry accounting (in case you would like to learn more) and it as simple as accounting gets. Banks have traditionally used these terms relative to their own books, not how it relates from an account holder’s perspective.

With this understanding of credits and debits and the nature of liabilities, can a mortgage or car loan be considered “credit”? Indeed, they increase your liability (amount owed to the lender). From your financial perspective, increasing your personal liabilities can be considered credits.

You’re absolutely correct that using a credit card creates a liability. When you purchase something on credit you are borrowing funds from the credit card company for short-term liquidity.

I don’t mean to single you out, Troy. I can recall struggling in school to reconcile the differences between my bank statement and what I was learning in my accounting courses. In my opinion, the name ‘credit card’ is not a marketing gimmick. It’s just another unfortunate victim of funky bank jargon and our assumption that statements should reflect the perspective of the account holder.

I realize that most people probably don’t care about this distinction or that I might not have communicated it clearly. For that, I apologize for being a stereotypical accountant.

Plus with the CC, I get 1% back on everything that I buy. This has added up to nearly $200 over the course of 3 years.

I agree with the author that one has to learn how to use the credit card. Easy credit has fuelled the want-it-now mentality but the gratification will come back to haunt us.

Yes, the bank oh so generously gave me back the NSF charges, and I fortunately had an understanding landlord and a credit union that worked with me on the car loan while the situation was resolved. But the three days worth of time wasted fixing someone else’s mistake made me a big believer in using my credit cards from that point on (and yes, I pay them in full, and the rewards from the Upromise card are going to help my boy go to school someday). Yes, I did have one double charge on another card five years ago…..but that irritation never put me at risk of having the repo man looking for my ride, or ticking off my landlord.

The one thing that I really didn’t expect while sorting this mess out was hearing from the bank’s own employees that they themselves NEVER use debit cards…..because they KNOW what kind of mess can happen when they get screwed up.

Sorry, I’m gonna charge it and pay it online. I don’t have time to fix my bank’s mistakes, thank you.