The Big Debate #3: Credit Cards or Debit Cards?

?This week, The Simple Dollar is taking a deeper look at five common personal finance debates.

Several people I know have made the active choice in their life to completely avoid the use of credit cards.

In the modern era, this seems like an almost shocking choice. Credit cards seem like the foundation of basic money management. We use our plastic everywhere as a matter of course, a fundamental part of how we do things like buy groceries and household goods and make other purchases.

Yet it’s a lifestyle choice that many make, and it’s actually not as difficult as it sounds. Over at No Credit Needed, there’s a great explanation of how one guy gets by using just cash and his debit card, no credit at all.

Is this a reasonable lifestyle choice, or is it just foolishness? Let’s take a look.

What Are The Options?
Credit card users are in the clear majority here. NewsHour reports that in 2001, 76% of Americans had at least one credit card to their name, and that number has certainly increased since then. Many credit card owners use their cards responsibly but frequently, taking advantage of the buyer protections offered by credit cards and the convenience of using them to facilitate day to day purchases. I know I’m certainly in that camp.

So what do the rest do? No Credit Needed explains things very clearly: a mix of electronic transfers, debit card usage, checks, and cash use. Coupled with a clear budget, this enables people following this kind of system to never “accidentally” slip into credit card debt – it provides a nice barrier of protection.

What Are The Big Differences?
The biggest difference between the two perspectives rests in the functional differences between a debit card and a credit card. A credit card tends to offer significant buyer protections and allows you to make any purchases you like up to your credit limit, but that’s a double-edged sword – you have a bill to pay, after all. A debit card may or may not offer buyer protections (you’ll have to talk to your bank to find out) and your limit is effectively the balance of your checking account, since any purchases on a debit card are directly pulled from there. There’s no bills at the end of the month, though, and the only danger is overdrafting.

So What Should I Do?
First of all, regardless on your feelings on the use of credit for regular purchases, it’s worthwhile to get a credit card. Establishing a positive credit history can only help you in life – it helps with insurance rates, the interest rates you might get on car loans and mortgages, and so on. If you object to using credit, just get the card, register it, put it back in the envelope, put it in a safe place, and forget about it.

Now, what about the use of credit cards in day to day purchases? I think it really comes down to psychology – do credit cards create a psychological temptation to spend more than you should or perhaps create a feeling of unease and a lack of trust in your own spending habits? If credit cards trigger either of these responses from you, then you’re likely better off not using one, because the concept of using a credit card is inherently altering your spending. Again, No Credit Needed explains it rather well – his debt was out of control and it was clear to him that access to such easy credit was a big part of the problem.

I think a period of “credit abstinence” is actually useful for many people, as it provides an opportunity to re-evaluate your priorities without an increase in your debt load. However, the convenience, buyer protections, and rewards of credit card use make it a valuable tool if you use it wisely – don’t carry forward balances, avoid “accidentally” being late, and so on.

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89 thoughts on “The Big Debate #3: Credit Cards or Debit Cards?

  1. Nick says:

    Credit cards can be very helpful and the benefits from using it for day to day purchases can actually help you save money. For instance, rewards points that help you save money on airfare, food or gas are worthwhile. Now with that said, you need to show constraint and balances need to be paid off monthly so as not to incur finance charges.

    Trent, what about doing some research into how you use a credit card affects your credit score? Like is carrying a small balance from month to month then paying it off actually helps your credit score better than just keeping a credit card in your wallet and never using it? I would be interested in seeing how doing different things in life directly affect my credit score. I’m in my early twenties and it’s useful for me to know how to build my credit score to help me in the future.

  2. Tabs says:

    Psychologically I am more apt to want to protect and use my debit card wisely, i guess for the reasons you stated above, I am not 100% sure what protection my bank offers me, so I take full responsibility for my actions when it comes to my debit card. I love credit cards that I know will protect me and use those cards especially with online purchases. With online purchases other than places like amazon and big companies, I use my paypal account just to protect myself.

    I also love using my debit card because I know exactly how much money i have in the bank and helps with impulse purchases. Great post, thanks.

    -Tabs

  3. !wanda says:

    I’ve read here and there that some banks will cancel your credit card if you don’t use it for a while. Is this common? I have a card that I don’t use anymore, but I would like to keep it to show I have a longer credit history. (I guess I could read my user agreement, but that seems rather daunting.)

  4. !wanda says:

    By the way, I like the “debate” idea.

  5. LC says:

    I have a debit card with credit card overdraft protection. Most of the time, I don’t have to use it, but when unexpected bills come up, or I didn’t time the automatic billpay exactly right to match my paycheck, its been wonderful to have that protection, which is free. I pay the balance right away.
    I also guard my purchases more carefully with the debit card.

  6. Alisa says:

    I think it is good to have credit cards only if you can use them wisely to your benefit; i.e. building a solid credit history that will help you get lower rates credit-related purchases, provding yourself with a “free loan” if balance is paid in full prior to the due date, and helpful in cases of severe emergencies if cash is not available. The challenge is, however, not to become overly indebted to the credit card, and here lies the problem with many.

    Be well.

  7. Emily says:

    There is one major difference: A credit card is a much safer way to make transactions. If you make a purchase with a credit card and the merchant never ships the product or if someone steals your card and goes on a shopping spree, the maximum you’re liable for under law is $50. Your credit card company can also fight for you if you make a purchase that is flawed and the merchant doesn’t want to give you your money back. It doesn’t work that way with a debit card. If your debit card is lost or stolen and you don’t report it immediately, you can be held liable for ALL the lost money since the money is already gone — no third party like a credit card company. You don’t have nearly the same amount of protection.

    Another main difference is that credit cards often come with rewards and loyalty programs, but most debit programs don’t. That’s changing a little bit — I recently got a United Airways debit card through my bank and get air miles for regular debit purchases — though it has a $35 annual fee and I only earn half the miles I would if it were a credit card.

  8. April says:

    “If you object to using credit, just get the card, register it, put it back in the envelope, put it in a safe place, and forget about it.”

    Eh, don’t “forget about it.” Check your statement every month. I had two charges removed just last month that I didn’t make. I found sites on line where others had the same exact charge from the same non-existant company.

  9. Your Friendly Neighborhood Computer Guy says:

    Credit Cards are a slippery slope. I think one should not apply for a credit card until they’ve spent several years as an adult without one. The trouble happens when you’re young, just starting your career, and figure you’ll be able to afford to pay for that plasma TV “later”.

    That was me about 7 years ago. I’m just now, thanks in part to this blog, starting an aggressive one year plan to eliminate the $7k in debt I’ve been trying to get rid of for 4 years now. I’m putting it all out there on my blog so I can stay accountable, wish me luck!

  10. akb says:

    I’m surprised that you don’t mention the difference in fee structure between credit and debit cards, that is, 2% versus a few cents, respectively. Most of the time this is transparent to the purchaser but the retailer has to pass the transaction costs onto the consumer.

    There’s a certain moral dimension to this, ie, that debit and cash shoppers pay part of the costs that credit card shoppers cause. Reward credit cards distort this even further, the credit card shopper is recovering at least some of the costs that they have imposed on the retailer, whereas the debit card and cash shoppers just have the higher costs.

    I’m curious to hear people react to this.

    Something I’m also curious about, we’ve all heard about studies of how credit card users buy more than if they were using cash, is anyone aware if the same is true of debit card users?

  11. Lori says:

    I had a forced period of credit abstinence when I screwed everything up and used a nonprofit credit counseling service. They negotiated lowered interest rates for me, but if I used or applied for any new credit, I would have lost the consolidation opportunities.

    When I finished paying (4 years!)I had one card with a limit of $200. I use credit regularly now, and pay off the balances each month except for one 0% card that I’m paying down from a vacation. Having suffered the consequences, I’m much more wise. I trust myself to use credit responsibly…which is something 4 years ago that I never would have said.

  12. writer dad says:

    Just debit cards for me, 90% of the time anyway. If I don’t have it in the bank account (which I usually don’t), I can’t afford it.

  13. BM says:

    I stopped using credit cards about 5 years ago, but the mess created by credit card misuse, balance transfers and some stupidity required almost 5 years of cleaning up. For this very reason I completely stay away from credit cards except on rare occasions when my wife takes my debit card for shopping and forgets to put back in my wallet :)

  14. I agree, it completely comes down to whether or not you think you can handle it or if you think you will lose control. Obviously, when compared to the alternative of credit card debt, debit cards seem like a smart choice. But if you can handle credit — and I think its worth making the effort — I don’t see how credit cards can’t win. The consumer protection is significantly stronger, and it makes me nervous to use a debit card that is tied directly to my checking account.

    With a credit card, if there is a dispute, you have, at the very least, two or three weeks to clear it up before payment is due. With a debit card mistake, that money is gone right away, and yo uhave to fight to get it back. Even if your bank sides frequently with the customer, you still have to make the effort.

    Anyway, I wrote more on this not too long ago: http://www.studentscrooge.com/2008/04/23/why-debit-cards-scare-me/

  15. Pchan says:

    @Emily–ITA. Though I’m not a fan of credit cards myself, I use them if I have to use plastic precisely because I’m not liable if someone gets my number, etc.

    Another thing to keep in mind: Some merchants will hold up to $75 in your account if you use a debit card. Not the case with credit cards.

    So I try to use cash as much as I can these days. One exception is gasoline–Discover is paying 5% cash back on gas purchases, so I’m paying for my gas with Discover (unless I’m at a station where the lower price is cash only).

  16. I pay for EVERYTHING with my credit cards(well, not my mortgage, obviously!). By the grace of God, my husband and I are very disciplined with them…we only buy budgeted-for stuff, we pay the bill in full each month, and we reap the credit card rewards. For me, it works great, but I know it’s not for everyone.

  17. will says:

    Trent,
    You’re spot-on about the fact that it’s a psychological issue more than anything else. If those people that use only debit cards use a credit card as if it was a debit card, then they’d actually come out ahead due to the rewards/protections/cashback that credit cards offer.

  18. Cédric says:

    In France we don’t have any credit cards, only debit cards. It makes sense for french people to purchase something only if you have the amount of cash required on your bank account.

  19. Macinac says:

    Item 1: I fail to understand why some scanners ask whether the card is credit or debit. What happens if you give the wrong answer? Probably nothing from the customer’s point of view. And why can’t this be determined automatically? One digit in the card number, or one bit encoded would be enough.

    Item 2: I have bought gas for several years now without having to sign a paper document. This means anyone could use the card if I lost it. Presumably this applies equally to credit and debit cards.

  20. Lurker Carl says:

    I cut up my debit cards about two months after the bank issued them. Forgetting to record purchases and ATM withdrawls in the checkbook register was an overdraft nightmare!

    Besides, I rather have a thief steal the bank’s money if a card is compromised. If my account is wiped out, the bank considers it to be my problem. The bank is greedy enough with their outrageous fees, let them shoulder the fraud burden.

  21. Patrick says:

    I have a home loan that came with a really good credit card. Apart from using it for convenience, I use to save on interest. This is how it works. I have my current account set up to 100% offset my loan. If I made a purchase on my debit card, it would have gone straight out of my offset account. But because I pay on my credit card, the money needed for that purchase stays in the offset account until I settle my credit card balance at the end of the month. So basically I am deferring my monthly expenses by a month and using that money to offset my home loan, and therefore save money. Does this make sense?

  22. I chopped up my credit card after I wracked up 4000 dollars in my last year of college on absolute crap. I just now got the thing paid off. I would rather not have a credit card and continue to build my credit score with my student loans, mortage, truck payment, cell phone, etc. I will never EVER do the credit card thing again. God Bless debit cards. Amen.

  23. PeterR says:

    I use my credit card for everything that allows it (aside from food, I can’t justify signing for a slice of pizza or similar when I can just hand them cash and be done faster)

    There are several reasons I do this:

    1. I use the Amazon.com credit card and typically get a $25 reward every other month or so. This translates into getting several regular needs paid for every time therefore saving me money.

    **2. I worked at a bank… I’ve seen what kinds of nightmares can happen if a company puts extraneous holds on your card. With a Credit card it isn’t at all noticeable – with a Debit card it could cause you to be overdrawn, fees, issues with late payments and bounced check fees from other companies… I could go on.

    3. I like the extra week – month of interest in my bank account. While this doesn’t really add up to all that much, it is a matter of principle for me. Why should “they” get that interest when I could use certain situations to my advantage and get it myself?

    Now, with all that said, I keep meticulous records and each month pay not only what the bill says but also what I know I’ve spent. So if they cut my cycle on the 15th and I get the bill on the 20th and it is due on the 1st I’ll pay them everything I charge from the 15th on as well.

    This works for me because I carry no balance and pay no interest. It works for me because when I use the credit card I “transfer” the money out of my “spending allowance” and put it in my “credit card payment” column in my records so I can’t over spend.

    ** NEVER use a Debit Card to rent a car EVER! They were the worst offenders by far and it is very difficult to get the holds taken off your account even with a Bank Manager who is on your side trying to help.

  24. gr8whyte says:

    I never use my DC because I think my bank may have the right to debit checks and DC charges as it sees fit (haven’t read the fine print; it may, it may not). Suppose you’ve $100 in the account and 3 checks/charges come in on the same day in the amounts $40, $50 and $60. If they’re debited in the sequence $40-$50-$60, you’ll end up with 1 overdraft fee. If they’re debited in the sequence $60-$50-$40, you’ll end up with 2 overdraft fees. Guess which way my bank will choose to debit my account? If I link my checking to my savings account (overdraft protection), the scammer who manages to access my checking account will be able to drain my savings account as well. So I keep accounts unlinked, never use my DB, use a CC for everyday transactions and pay it off in full every month.

  25. Ronnie says:

    To Macinac: In response to your first question, with newer scanners the debit or credit question only comes up if you’re using a debit card, because you have the option of using it either way, using it as a pinpad for debit or a signature-based credit transaction. For strictly credit cards, newer scanners bypass this step, but they’re expensive and some businesses see no need to upgrade.

    In general, I’m a debit card user. I know I have no discipline with a credit card, so I don’t bother. I use them only as a hold for hotels or cars, but I pay the actual bill with my debit card for reasons outlined by PeterR. But I think people need to be responsible for reading their agreements more carefully. I used to work for Visa; when they made their zero liability rules for credit cards, they also later made it applicable for debit cards as well, when used as a signature-based transaction. So many of the concerns outlined are really inapplicable. The difference is when the card is used as a pin-based transaction; then the protection may not apply. If that’s your concern, simply sign with a signature instead of typing your pin, and the protection applies.

  26. Charles says:

    Anything you might consider ever, ever, ever returning, you should pay for with a credit card.

    Also, akb, I can’t see much of a moral dimension here. Credit cards make shopping easier, so people shop more. There’s no obligation to take credit, it’s just a smart business decision. You could say the same thing about, say, checks and cash (people who pay cash are paying more to make up for bad checks, etc).

  27. j says:

    I’m glad this topic has come up. I am credit card free right now and use my debit card/pay bills online for everything. It’s all psychological: If I have cash, I spend it. GONE. With a DC there is a thought process of having to know my balance and take the card out to swipe it. However, the exchange is over once the transaction takes place – I get my item, and the money is gone.

    What scares me about CC is that I get the item, but I technically still have the money. My money doesn’t leave my account until I pay the bill. I know I’m capable of avoiding overspending since I never overdraft with my debit card, but I hate the feeling of having paid for it and then, weeks after the transaction, having to *actually* pay for it.

    I know this sounds odd. Again it’s all psychological, but it’s something I am struggling with. I am happy being CC free, but everyone tells me I NEED one for my credit score. My plan is to get a CC and use it only for gas since I fill up about 2x per month. Any more charges and it’ll become like cash to me – and that will be the end of my great credit score.

  28. gwen says:

    Trent, I think you hit the nail on the head – it’s all about the psychology of the cards. We use credit cards exclusively. I like the buyer protection, but the biggest reason we use cards is the convenience. However, we have never thought of our credit cards as anything other than debit cards. We buy only what we can afford. Never anything more. Sometimes it takes discipline, but really, we’re lucky we’ve always had this mindset.

  29. doctorS says:

    I think using credit cards for day to day activities is good as long as you are able to pay off the balance at the end of the month in its entirety. I agree that especially for traveling and airfare, credit cards can be extremely beneficial with their reward points. I and many of my friends having been using the Southwest credit card religiously and racking up free flights. You just have to be responsible and careful with your spending and not go crazy!

  30. mk says:

    I use credit card for everything like PeterR (comment #17), hardly carry much cash. I use 3 credit cards by purpose (1.daily grocery and recurring monthly expense, 2.business expense, and 3.occasional leisure and entertainment). They have either annual expense report by category (business), cash rewards(daily grocery and gas), buyer protection and travel insurance (leisure). I don’t consider credit card purchase as “psychological” downside at all, rather automatic ledger as a budgeting tool. It make your money management streamlined, and you should treat as business as you are CFO of your household. Bring cash or debit cared doesn’t always warrant for better management.

  31. Stacey says:

    Macinac: There is no “right” or “wrong” answer. Some cash registers require the distinction so that they can display a pin pad or signiture line. All debit cards can be used as credit, and some credit cards (i.e. Discover) can be used as debit to get cash back.

    Having successfully used our credit card’s buyer protection, I am a strong believer in credit card use. Both times, the company charging me immediately removed the charge when I mentioned speaking to the cc’s remediation center.

    If you’re already budgeting, why not use the cc as cash? We budget for every dollar spent, regardless if it is spend through cash or credit.

  32. shahrul azwad says:

    Your article is a bit too short than usual.

  33. PetMom says:

    For many years we’ve used 1% cash back credit cards for the majority of our living expenses.
    Over the past 5 years we’ve earned $993 cash back.

    We use a credit card for groceries, gas, household stuff, clothing, etc. We also use it on annual bills when there’s no added “convenience’ fee. This includes our car registrations and auto & home insurance.

    I never use a debit card for purchases and rarely write paper checks. We use cash for small purchases, at locations where we don’t fully trust the integrity of the business or employees, and when we don’t want to end up on a company’s mailing list.

    With large monthly credit card bills, I am extra diligent about paying the bill on time, in full every month. I find it much easier and more convenient to reconcile and pay one credit card bill at the end of the month rather than numerous checks, debits, or cash transactions.

    The only negative experience I’ve had using a credit card for everything is at one point I had 7 monthly utility bills auto-charged to a credit card. It worked great until I had to cancel the card because I thought I had lost it (which I hadn’t). It was a fiasco trying to undo the billing mess, especially after some companies didn’t notify me that charges went to the old card and didn’t get processed – they just showed up on the next statement with late charges. Luckily the service reps understood what happened with our billings and the few who had charged late/nonpayment fees reversed them. I decided it’s easier paying the utilities via bill pay from our checking account and the $40 we would have earned from the 1% bonus is nowhere near enough to tempt me to do that again.

    But I’ll still take the $200/year cash-back bonus on my credit card for purchases we’d make regardless of the payment method.

  34. Sophie says:

    Trent’s advice about establishing a positive credit history by putting a credit card in a safe place and forgetting about it is off base – highly unusual for him.

    An unused credit card will not help your credit score. The terms to google are “dormant” and “unscoreable”. Also, some issuers DO cancel unused cards. We found out the hard way that our “back-up” credit card had been canceled due to lack of activity when my husband tried to use it for the first time after his wallet (with our primary card in it) was stolen.

    I believe Trent should have recommended this: if you object to using credit, get a card, register it, put it in a safe place, and remind yourself to use it once a quarter AND be sure that you pay the credit card bill in full the day it arrives.

  35. troy says:

    Unfortunantely,lots of misinformation or incorrect information out there.

    Credit cards ONLY benefit is credit. Everything else is a smokescreen. Since you shouln’t spend money you don’t have, credit is a poor reason.

    Protections? It “used” to be that debit cards protections were inferior. No longer. As long as the debit card is issued by Mastercard or Visa, which most are, the purchase protections are exactly the same. Exactly. Look it up.

    Convenience? Debit cards are just as convenient. They are also plastic, same size, and provide identical functions. Please explain to me how a credit card is any more functionally convenient than a debit card.

    Ahhh…the rewards. The rewards are so valuable. Really. At what cost.

    There is no cost you say.

    Yes there is,and it is NEVER mentioned. RISK. Come on Trent, RISK

    Debit cards have virtually no risk.

    Credit cards have immense risk. Risk of default, risk of missing a payment, risk of “universal default.” Risk of misappropriation of payment. Risk of forgetting to make the payment. Risk of not being able to make the payment. Risk of the terms of the card changing mid-game. RISK of LIFE.

    Don’t think this stuff doesn’t happen. IT happens every day. It will get worse as more people default on their cards

    Life rarely goes as planned. Everyone “plans” on paying their cards off each month. Yet Most don’t and the average household balance is north of 8K

    Debit cards take little thought. If you run out of money, you are out. Credit cards take lots of thought, tracking and payment. Using a credit card forces everyone who uses it to revisit each transaction at least twice. Once at the Point of Sale, and once at the time of payment.

    That seems like a waste of time to me.

    Are the rewards worth the time and risk. Not even close. How many wealthy people do you suppose got there because of credit card rewards. How many of those same people do you think got there by not being in debt at all (even for 20 days) and only spending money they have.

    Credit cards are trash. It is a rigged game, where the rules are set by them, and it is considered a “success” if you merely don’t get burned.

  36. Ben says:

    My sister in law recently got tricked into a contract for personal training at a gym when she thought she was using her debit card for a 1-month trial… and used her debit card. They took her electronic signature from the keypad and pasted it onto a 1-year contract. When she called the bank to stop the recurring payments and credit her for month #2 (when she realized what was going on) the bank said she would need an authorization code from the gym. WTF!! They don’t need her explicit permission to initiate a recurring payment but she needs their permission to stop it. She had to close the account to stop the payments.

    My one experience with a fraudulent credit card transaction was a piece of cake by comparison.

    I use the debit card for ATM withdrawals only. It’s cash or credit card for me.

  37. Rob in Madrid says:

    I’m 100% cash and couldn’t be happier, no more “what the hells this charge all about” anymore.

    I don’t care about rewards no money in the bank no spending.

    It helps that Spanish debit cards have the visa logo for online shopping but the money comes direct form my account.

  38. Rob in Madrid says:

    With large monthly credit card bills, I am extra diligent about paying the bill on time, in full every month.

    too much hassle. I have two accounts one for fixed one for spending, put the same amount in each month and never worry about “balancing” the check book. There’s always enough to cover all the bills.

  39. The responses against credit cards are very interesting—it’s almost like we’re talking about a highly addictive drug: “I don’t want it in the house,” “stay away from them,” etc. It comes down to self control, really, and if you can’t control yourself then you shouldn’t carry one around.

  40. Stacey says:

    “Debit cards take little thought. If you run out of money, you are out. Credit cards take lots of thought, tracking and payment.”

    Heh. Ever bounce a check because you failed to track your debit card purchase?

    How is this different from tracking credit card purchases, and then paying them in full each month? If you can use Quicken, Microsoft Money, Excel, or even a pencil and paper, you can track your debit OR credit card expenses.

    It’s the same principle, and for me take the same amount of time and self-control. Actually, my debit card takes two documenting steps for each purchase: One in MMoney, another in the check book.

  41. Jules says:

    I’m cash-only except when it comes to bills. I’ve had and used credit cards, and even though I’ve never owed a balance, I just never really liked owing money.

    So I quit credit cards. Now I pay cash (except for bills/mortgage/student loans) for EVERYTHING. I’ve actually grown to really like cash, because it comes out of my account in neat numbers that are easy to subtract from my current balance.

  42. eden says:

    One quibble:
    The vast majority of the people who don’t have a credit card aren’t just using debit and cash. These people (either due to poverty, poor money management or both) do not qualify for credit, and in many cases not even for bank accounts. They survive with cash, payday loans, and check cashing companies.
    Your post presents it as though these 24% are making the choice to avoid credit, which is not the case.

  43. Sally says:

    We have both. It is psychological in that Debit= what I have and Credit = what I don’t have. I am much better about paying off in full all the balances – but using credit cards (or store cards – Kohls, Macys, etc.) does put you in the game.

  44. H-Bomb says:

    I use debit cards. My bank offers $75.00 worth of groceries ect when you first get the card and I get a cash back bonus when I use it as a credit card instead of debit. And this does show up on the credit report as a credit history. Also, I made some pretty large purchases with my tax returns and I got a phone call while I was still in the store parking lot to confirm that I did actually make the purchases in question (that was amazing customer service). So I think I have the best of both worlds on this debate.

  45. Kevin says:

    I’m wholeheartedly in the credit card camp since we’re pretty frugal and don’t tend to overspend like some of the studies out there say people do when using CC. The rewards we get on our card are pretty good – about $500 a year. Trent – I’m surprised you didn’t mention the rewards as a “pro” on credit cards since this is a big bonus to using them.

    For our household, it allows me to smooth out our cash flow, since only our mortgage payment and a couple utility bills are paid via the checking account. We can put almost all our money in our higher yield money market until the CC bill is due.

  46. Ryan says:

    Troy,

    Using credit doesn’t mean you don’t have the money. If I go buy a laptop from http://www.apple.com, and pay the balance when the bill comes, it’s no different than writing a check or paying cash at the store.

    I think carrying around cash could be considered a pretty big risk. Losing a wallet with just credit cards isn’t really a big deal. Just a few phone calls or clicks of the mouse and a new card is on the way.

    Oh, many credit cards companies no longer participate in universal default so that risk is 0%.

  47. Kevin says:

    Troy -

    I’m going to play devil’s advocate with your post since you seem to be so anti-CC so don’t take it personally.

    1) Credit – don’t spend more money than you have – agree with this

    2) Protections – in my particular case this is correct, my US Bank debit card has “zero liability” as does my Chase Visa. Luckily I’ve had no fraud with my cards so I cannot comment on which card is easier to get charges reversed on. However, I would much rather have people run up my credit line on a CC than to draw down my checking account balance – possibly causing me extra overdraft charges or having my mortgage payments “bounce”.

    3) Convenience – debit cards almost always have a daily purchase/ATM withdrawal limit. Ever try buying an appliance or something large with a debit card? Not very convenient when it’s rejected.

    4) Rewards – personally, if I’m going to spend money anyway, I’d rather make money (about $500 a year in CC rewards) than not make money.

    5) Risk – I don’t understand this argument at all. You say credit cards are risky because “IT” might happen. OK, you lose your job (IT) – you have no money coming in. How is using a credit card any different than a debit card in this situation? You will run out of money at some point – either by using a debit card or by paying the CC bill at the end of the month.

    6) Amount of thought – you argue debit cards take less thought. I disagree – you think about a debit card twice – when you swipe and when you reconcile the charge with your bank statement. Same with a credit card – once when you swipe, again when you verify the charges on your statement each month.

    7) Wealthy people didn’t get that way due to CC rewards. Agree with this. However, I still don’t see a downside to earning an extra $500 a year by using my CC for purchases I’m making anyway.

    Kevin

  48. Kevin says:

    I forgot to mention in #38 that another reason I like using CC for everything is that I hate carrying around cash. If I lose my wallet with cash in it, I’m out the money. I don’t lose anything if I lose my wallet with just CC in there.

  49. SBT says:

    Debit works much better for us. We have a credit card. It is used for airline tickets and, rarely,some major purchases that we want to spread out over a few months.

    Oh, and my spouse does use credit in one instance. He buys on a certain sporting website where he earns credit toward buying more stuff from them. Which he will do, no matter what. That’s it. Period.

    Rewards? Great for you if you really do pay in full every single month. If you miss once, I’m willing to bet your interest and fees outweigh the reward. For me, they’ve always been far outweighed by the fees when I forgot to make a payment on time.

    I am admittedly not a good record keeper. Never will be. I do much better with my debit card and my online access to my checking account. I can go there daily and see what the bank says I have. They make far fewer accounting mistakes than I do.

    No, I’m not an idiot, I’m just a liberal arts kind of person (college teacher) who doesn’t like fussing with numbers. I set most of my bills up on auto withdrawal. I work with a local bank that I trust and has been great to me. I don’t trust Citibank. They have every incentive to try to get me to mess up, or to mess with due dates, etc. I’ve been in that game, and I won’t go back to it.

    Rewards? I prefer interest earned in my own bank account.

  50. Marin says:

    It’s funny, growing up my parents didn’t use credit cards for groceries because my dad said something like “you don’t buy basic food necessities on credit”… My husband and I now, on the other hand, put everything on the credit card (we rarely carry cash) for the air miles. We are also fastidious about paying it off every month, on time. My husband is uncomfortable about the idea of debit cards because, to him, they are more of a security risk. I basically only use mine at Sam’s Club!

  51. beloml says:

    Debit cards users are EXTREMELY vulnerable to fraud. After learning more about this issue after someone stole $6,000 from my husband’s account using a fraudulent debit card in a jewelry store in Egypt (ran progressively lower amounts until he hit an amount that could be covered) I vowed to NEVER use one again.

  52. flawed says:

    I’m in Germany, and I have a credit card where the credit card payment is automatically drawn from my regular checking account at the beginning of the next month.
    Are credit cards like this available in the US?

    I feel this is a nice combination of some of the advantages of credit and debit cards: Especially, not having to remember actually doing the credit cards payment and being unable to incur any credit card debt.

    I can, however, (and find myself guilty of) “pushing” payments to “after then next paycheck” when I don’t have the money to make purchase this month. That’s probably not perfect financal responsibility. At least, I don’t have to pay interest charges for that.

  53. flawed says:

    (btw, I the bank allows me to overdraw my regular checking account to quite some amount before payments start to bounce – at the cost of fairly atrocious intrest rates. This is the German way to consumer bankrupcty ;-))

  54. KC says:

    I’ve had my credit card be a victim of fraud 3 times in the past year. PErsonally I don’t want my checking account (Debit card) to be a victim of fraud. I don’t want my bank account drained. It is simply to easy for card numbers to be obtained. At least with a credit card you won’t be on the hook for the purchases. I use my debit card for one thing only – to withdraw money from the bank’s ATM (I won’t even use it in an independant ATM).

  55. Michael says:

    Trent:

    Great article as always. My wife and I have been strictly following a budget for well over a year now and it is working well. We used to be part of the crowd that rarely used credit and always used debit cards due to the psychology that those who use debit cards tend to spend less than those who use credit. However, when you truly become budgeteers and follow well defined category spending limits you can safely use credit cards. And the poster Troy is completely wrong. The protections offered by debit and credit cards are NOT THE SAME. According to the Federal Trade Commmission and the Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA), they vary but your POTENTIAL personal loss with the theft or loss of a debit card can be 10 times greater than the loss or theft of a credit card. If you’re responsible with spending and want the extra protections credit cards can afford, use credit responsibly. Check it out for yourselves at: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre04.shtm

  56. IACate says:

    Since my husband and I have been married (3 years) we have chosen not to have credit cards. We are not home owners yet, but we have store credit cards(such as Best Buy) in order to help raise our credit score. We only have used it for big purchases in which we pay off the balance, interest free, in a couple of months, so it’s like paying cash, but helps us to build credit. The only time we’ve found it to be difficult to live with out a credit card, was when we were trying to rent a car, but some car rental companies allow debit cards with a round trip plane ticket, so it’s not really an issue. As for the comments about Debit cards being especially susceptible to fraud, we buy very little online, it’s a good excuse to support local businesses.

  57. K says:

    eden -
    There are many people (myself included) who use debit cards for the sole reason of not wanting a credit card, not just because they don’t qualify. I’m 29 and have never had a credit card and haven’t missed it either. I’ve gotten a mortgage and good insurance rates without having a credit history at all.

    However, there were a few instances of fradulent charges on my debit card that the bank wouldn’t clear up (they did credit the 1st one that happened, but the second two, which were higher amount, they wouldn’t). That and the rewards available are making me consider getting a credit card. CC’s do offer more protection but they are definitely not necessary.

  58. occasional commenter says:

    I use my credit card exclusively. However, without fail, the full balance is paid off each month, so you can consider it a deferred debit card. I use a Mastercard that is offered by a grocery store that is the one I predominantly shop at and they offer points towards purchases. So every month I swipe the card at the checkout and every now and again can accumulate enough to get a 30-70 dollar reduction off my grocery bill. Of course, that means I spent a few thousand on the card but it is all normal spending. I don’t have to go out of my way or buy things I normally wouldn’t just to get the points.

    So, if you are a responsible spender I would say go credit card all the way. Get a decent rewards program that fits your spending habits and the increased purchase protection and you’re laughing.

  59. Another Personal Finance Blog says:

    I think a good answer is … both. These days, there are some things you just need a credit card for, such as renting a car or reserving a hotel, etc. I used to go mainly with debit, but occasionally would use credit to cover a charge that I wouldn’t have the cash for until my next paycheck. Now, I use a credit card for just about everything to take advantage of the rewards. In some cases, such as at Costco, debit is required. I would recommend only staying away from credit if you are already in debt or tend to spend more than you have.

  60. Danny says:

    @Troy:
    “Credit cards ONLY benefit is credit. Everything else is a smokescreen. Since you shouln’t spend money you don’t have, credit is a poor reason.

    Protections? It “used” to be that debit cards protections were inferior. No longer. As long as the debit card is issued by Mastercard or Visa, which most are, the purchase protections are exactly the same. Exactly. Look it up.”

    Sorry but you are completely wrong. I think you need to look it up. Even a visa debit card has less protection than a visa credit card. Also, the $250 check I just got from my rewards card isn’t a smokescreen. I don’t spend money I don’t have, what does that have to do with using a credit card?? Not everyone carries a balance.

    I just don’t understand why anyone would not use a rewards credit card. It is a VERY easy frugal thing to do.

  61. Erin says:

    For those commenters who wondered what the difference is to the consumer when the store asks you if you want to run your debit card transaction as debit or credit… when I use a debit card as a debit the funds typically come out of my bank account the next day. When I use it as credit it usually takes several days for the funds to come out. So I always say “credit” when asked, not because I don’t have the money but because I figure why not keep the money in there longer earning a little interest in my checking account? Granted the amount is miniscule, but it’s partly the principle of keeping my money as long as I can, and over a lifetime it will add up to a little something.

    Merchants typically try to direct you towards debit, though, because it costs them less per transaction then credit.

  62. Troy says:

    Danny:

    I am not wrong.

    Under the EFTA (Electronic Funds Transfer Act), the Federal Law covering debit card transactions, the MAXIMUM penalty for fradulent use is $50.00 In addition, most major banks have “zero liability” policies. My bank does. The liability protection is exactly the same.

    If your bank’s visa credit card has different protections than your banks debit card maybe you should look at a different bank.

    If you have the money, why not simply use it instead of borrowing it from a credit card for a few days. You are adding risk to the transaction without adding equal benefit, whether you understand it or not.

    Is it the convenience. I have argued that debit cards are just as safe, offer the same liability protections, and are just as convenient, and actually take less transactional time. There is no bill, and no risk.

    So the only true argument from credit card users is credit or rewards. that is it. All other functions are similar.

    Credit, no matter the terms, no matter the timeframe is poor money management. You cannot argue arbitrage, because the amount is so insignificant. It is debt, and this type of debt is bad. If credit is your argument, why pay the card off at all. why not continue to balance transfer from card to card in perpetuity.

    If your argument is rewards, you must offset that with risk and effort.

    Many people do get rewards with their cards. Why do you suppose that is. Is it because the CC companies are nice or is because it is a ploy to get people to use their cards. Why…because statistically, you will mess up. you will pay interest. That is how they make money, yet you think you are winning because you havn’t yet tripped. Everone trips.

    There is no free luch, there is no something for nothing. It is a numbers game, and you are playing roulette.

  63. gr8whyte says:

    For those who use a CC and pay in full every month, the CC is indeed being used like a DC with all the advantages of a CC ($50 limit if compromised, CC will intervene on your behalf with merchants, etc.) so can a pro-DC-er explain why a DC would be better than a CC for those who pay off their CCs in full every month?

    I remember banks trying to shift people with CCs over to DCs with massive advertising some years ago. If you’re doing A and the banks want you to do B, rest assured they doing so to improve *THEIR* financial/legal position, not yours, so you’d be better off if you just kept doing A. The same reason I refused to accept a binding arbitration clause on my CC account agreement.

  64. Monica says:

    One comment I’d like to add about debit cards; my husbands card was stolen. Before we noticed it was missing, the thief had used it for almost $400 of purchases. A smart clerk at a store asked for ID on one purchase and the thief refused to provide it then took off. When we called the provider of our debit card, we spoke to several different folks. ALL of them, without exception, said they do not have a debit card themselves. They see how very easy it is to get one or someone’s number and how many people are victim to this type of theft. I thought it interesting they all chose not to use them, at least at the bank I use.

  65. Dave says:

    For the responsible user, the answer is clear: Credit cards. Earn points, protection, and pay 0% for the privilege.

  66. gr8whyte says:

    This is a little off-topic but relevant all the same.

    Egg is a CC card company in the UK. After being bought out by Citibank, Egg reviewed 2.3 million accounts and cancelled 161,000 because Egg wasn’t making much money on them even though none were in financial difficulty. My paranoia says this is a dress rehearsal by Citi to kill off low-profit accounts, like those who pay in full, worldwide and perhaps in the whole CC industry. If Citi can get away with it over there, what’s to stop them from doing it over here? To read about it, google “bbc.co.uk credit card egg”.

  67. Kevin says:

    Troy –

    The liability protection is the same, but what would you rather have:

    a) Someone steals your debit card, drains your account and you keep bouncing checks – you have no access to money for a few days. You will likely get your money back, but what about those few days your account is empty?

    b) Someone steals my credit card and runs up my credit line. I still have money in my checking account, not to mention my other emergency credit card if I need it.

    You fail to talk about the risk of debit cards, but to me that seems more serious than potentially missing or making a late payment.

  68. Suzanne says:

    ING Electric Orange is the Debit Card that I exclusively use because it has no overdraft fees. I was getting killed by the bank fees from close transactions that went awry.

    Pre-authorization amounts on a Debit or Credit Card can hurt – we learned this on an anniversary weekend trip. Ask questions up front ALWAYS when making reservations. Any kind of reservations, car, ticket, hotel, any time you use your card to hold something for you.

    UPromise from CitiBank is my gas card so I can use the rewards to chip at student loan debt. We always use a rewards card as our gas card and pay the bill monthly. This card is never used for traditional credit purposes – it’s a cash replacement.

  69. gr8whyte says:

    Sorry, “CC card company” is redundant and should have read “CC company”.

  70. Saagar says:

    I am for the credit card too. Recently I had some weird purchase on my card with the name Eurovox billed from Paris France. Needless to say I havent been to Paris ever and I havent bought anything online from their “catalogue” either. I called in, got a conditional credit back and they are figuring out who the merchant is. Meanwhile I reduced the balance and now closed the card, while they are researching so I wont be liable for the charges. I have like 5 credit cards, and I pay balances in full, for me a purchase is a purchase from my Bank account because I have to pay the balance full in a month or so. So it doesnt matter and its good to see some cashback once in a while :)

  71. Sally says:

    Credit card companies can change your terms at will any time they choose. It is in the “agreement” If someone stole my DC and all my money then I would use a CC in the iterim. :)

  72. Alyson says:

    I didn’t read all of the comments, so forgive me if I’m repeating something.

    Everyone should be wary of using debit cards to pay for hotels and airline tickets. Quite often, either or both put a hold on your account in an amount larger than what you’re going to owe. Hotels definitely do this as a matter of course. You never notice these holds on credit cards because by the time they show up online, on your statement or bill, the hold has been reduced to what you actually owe but on debit cards (and the credit card companies KNOW that hotels do this), it can often tie up a significant amount of the money in your account. If, say, you’re going on a trip with your debit card and you have $3k in your account and your hotel expenses are going to add up to $1500 – you think you’re set. Half for hotel half for everything else. But, with the hold on your account, that $1500 can routinely tie up $2k or more, making you significantly poorer for the short term than you thought you were.

    Hotels do this to ensure that you don’t run out on a huge bill with tons of added charges like room service, movies, spa time, etc. They also do it to make sure that your card can in fact take all of those charges and you won’t be standing there at check out trying to pay with the lint you find in your pocket.

    So, for hotels, use cash or credit but be wary of debit. When I worked at a hotel we would see this occasionally, someone staying would try to pick up the tab on a big dinner (or not so big for those not so good with the $$) and the card would be denied because of the hotel hold.

  73. !wanda says:

    If the transaction costs for the merchants for debit cards are cheaper than for credit cards, why do gas stations, etc. charge you extra to use your debit card vs. your credit card? I’ve noticed this several times in different contexts. Is this just companies gouging the uninformed consumer?

  74. troy says:

    Kevin:

    I understand what you are saying. Personally, I do not keep a large amount of money in my primary checking account. I keep much more in a linked money market account that I transfer from when needed.

    In my situation, your example is unlikely. All my debit card transacions show pending at a minimum of the day they are debited, and usually up to three days, so I have ample time, from one to three days to not only see if any fradulent activity has happened, but to stop it before it is debited.

    Therefore the likelyhood that someone could drain my account is quite low. I check my accounts daily. The likelyhood that I am out of money is also remote because I don’t keep much in my checking account linked to that debit card.

    So yes, there is some slight risk, but nowhere near the amount in credit cards

    As I said before, I keep reading other talking about convience, points, protection, paying no interest, etc.

    With my debit card I also pay no interest, have similar protections, have similar convience, and have no bill, no worries, and little risk.

    I get that some people value the rewards. That, and credit are the only differing variables from debit cards. Everything else is the same.

    I personally don’t value the rewards, because I don’t find the usage, effort and risks associated with credit cards worth the “rewards.” To me, they are not rewards, they are carrots. I don’t do carrots.

    I also don’t believe in borrowing money if you don’t need to. I guess I am different. I don’t like to borrow anything. I don’t borrow sugar, or lawnmowers, or friends cars. I don’t like the liability. I like to own, not rent. Using a credit card is borrowing money. It is being in debt. It may be small or short term, but it is still debt.

    Credit cards are nothing but renting money. People can sugar coat it however they want, say it is convenient, say they pay off their balance each month, say they have never paid a penny of interest in years, say they value the rewards and generally try to convince themselves they have gamed the system.

    While I will not argue with the fact that $100, or $500 in rewards or points or whatever is valuable, one must always calculate the risk in achieving a reward. That is the number one rule of investing. To me, the risks outweigh the rewards. I am positive that for most credit card users, that is also the case, otherwise there wouldn’t be rewards to begin with.

    As for your improving your credit, be careful. Even if you pay your balance off each month, if you have a balance at the time of credit application, it will show up and count against you. I see it every day.

    This discussion is excellent, and the point of it isn’t whether you are comfortable with cards, whether you can control your spending, or anything else. It is the big picture I am concerned with. I have excellent control, and would have zero functional problems with using a credit card from a controlled spending perspective. That is not why I abhorr them.

    It is because they are time bombs. They may not be for some of you, but they are for 9 out of 10 people who use them. They cause suicides, divorce, and many other problems. I have seen countless intelligent people with all of the answers fall into the trap.

    These people had great intentions. They never wanted to get into debt. No one does. They faithfully paid off the card each month. The card was a tool for them, just like you It offered protection. It offered peace of mind. It offered rewards. points. They paid it off each month, until they couldn’t. Life got in the way.

    Life has a funny way of doing that. It may not have got you yet, may not ever, but it gets most of us at some point in time. I have never heard of debit cards causing societial problems. Checks either. Or cash.

    Credit card debt – different story. It will be the second credit bomb after our current one. Cards have become many peoples last refuge.

    Because of this, I am confident change will take place. Using a credit card will likely in the future start costing everyone interest. The average grace periods have already shortened, and the rates are already starting to rise. Soon you will have to use your own money if you want to pay no interest.

    Good luck

  75. Michelle says:

    I use my credit card for everything I buy, even a cup of coffee. I pre-budget a set amount out of each paycheck to put towards my card. As long as I dont go over that amount there is no problem. If I spend a little more that month, i just pay a little more. I get rewards, do not have to carry around cash, get all the protection and have instant access to funds in case of an emergency. I have had my purse stolen twice in the last 2 years, luckily a quick call to the cc company got it straightened out immediately, and I did not lose any money at all. There is no temptation for me to overspend at all becasue I know I will be paying out of the next paycheck. Plus one additional thing that no one mentioned, when using cash you wind up with tons of loose change all over the place that usually gets lost or is heavy to carry. With a CC if my purchase is $4.38 I only spend $4.38, instead of paying with a $5 bill and the remaining change getting tossed in my car, under the seat, in the couch etc. That adds up to a lot over time. I have never paid interest on a credit card ever because I dont carry a balance.

  76. Michelle says:

    I will also never charge any amount that I do not currently have in cash in a savings account, so I do not see any risk at all. If by chance I lost my job or did not get paid to pay off the last 2 weeks of living expenses, I would take this amount out of my savings account and still pay it off anyways.

  77. Tracy says:

    Limit on purchases w DC so you cant make a big purchase— Just ask the bank for a temp raise in limit. When we wanted to buy a laptop, I just stopped by my bank, told them to raise the limit to $XX for 24 hours, signed a paper authorizing it, and bought the laptop.

    Hotels, airlines Holding extra– Yes they do. Call before and get their policy so you are prepared. When we went on vac, I spoke to the hotel acct dept and confirmed that they would add $50 per day to my debit charge at check in, and they would reverse any unspent amt 3 days after check out. Would I rather not have the extra hold? Of course, but not so much that I would go back to using credit cards.

    Not writing down charges and getting overdrawn–
    That’s your fault. Using CC takes discipline to not overspend/ pay off every month. DC takes discipline to record correctly. Choose your poison :)

  78. Anne says:

    I use cash and debit for everyday purchases, but do use a credit card strictly for convenience. All of my recurring bills–cable, gym, Netflix, etc.–go onto a credit card. That way, I only have to pay one bill rather than half a dozen.

    I do get 1% cash back with this card, but that’s not even a factor. It amounts to about $2/month. Rewards are totally overrated–you only get large amounts of rewards if you spend a much larger amount of money.

  79. Georgia says:

    I will always opt for credit. For a long time, my husband & I were deep in cc debt. I was out of work for 1 yr. and had to pay bills, etc. & search far & wide for a job. But, I made certain all those bills were paid on time @ month to keep my credit good, even if I borrowed from one to pay the other. When I read that you were ahead of the game if your cc’s were at 14%, all mine (3)were at 9.9% until paid off. We finally got out of debt entirely when I retired.

    But I still use cc’s exclusively and put everything possible I buy on them. I pay off @ month and have for 4-5 years. And with Citibank I earned over $1200 in 4 yrs. & never paid them a cent. I budget so much @ month & subtract it from the front of my ck bk on payday to pay the bill when due. I never carry more than $50 in cash & usually less.

    I do not worry about my credit, as I am over 70 years old and feel I will not ever need a lot of credit. I have 2 very small retirements, my SS, Medicare, and a good insurance policy offered by my late employer, the State of MO. And, basically, my wants & needs have been lowered. I can go into stores with lots of lovely things, walk around with my hands in my pockets, and walk out w/o spending a cent. Loverly!!

  80. gr8whyte says:

    @ Troy : I hear what you’re saying. Now let’s look at the facts. Around ~1/3 of all accounts are paid off in full every month and this fraction has been relatively stable over many years. These folks are unlikely to change their behavior anytime soon, i.e., they will continue to pay their CCs in full every month and pay zero interest. These folks *could* switch to a DC but why would they? They’re using their CC like a DC and they get the float for free. There’s no point in switching to a DC for these people, it would be a step backwards. Sure, some people can’t conrol their CC spending and they’d end up in a lot of trouble but these *aren’t* the ones who pay off their CCs in full every month; they’re from a different cohort.

  81. cindy says:

    We have lived with just debit card for 3 years now and it’s been very good in many ways.

    However, renting a car for business trips has been a nightmare! First we couldn’t rent with a debit card without lots of other ID like your utilities bill (always in your purse, right?) then we could but not for a mid-sized or larger vehicle. And the rules keep changing. Every year we rent a minivan or SUV for our business trip but this year we found out at the last minute that we couldn’t any longer. Same company, new rules.

    And for hotels they can put a big hold on your debit card — which means tying up $500 or more of your checking account dollars you planned on using on that trip.

    So a credit card is really best for business travel where you need them to be able to put holds on credit without it holding up your actual money.

  82. Kevin says:

    troy – enjoyed the discussion, I think you’re right that we brought up about every pro and con for each side. Hopefully someone will read this and be educated by it.

    For the record, I don’t think CC will ever charge interest for everyone (aka those that pay their balance in full) like you said. They are still making their money no matter what. Even in a worse economy like now they are likely making more in interest. If anything they will lower the rewards or increase their merchant fees.

    You mentioned checks in passing. I for one would love to see checks go away as they are far more apt to fraud than either CC or DC. Not to mention I always seem to get stuck behind some moron in the express lanes at the store that takes 5 minutes to write out there check, then stand there and record it in their register. Sorry, big pet peeve of mine.

    Kevin

  83. troy says:

    gr8whyte:

    I agree with you. Even using your numbers of approximately 1/3 pay off their balance each month, that leaves 2/3 that carry a balance.

    That means twice as many people are losing at the game as winning, if you want to call it winning. Double the number are paying interest on borrowed money with terms that can change on the creditors whim.

    I am not saying CC are defective, they actually work exactly as designed. A minority claim to “win” so that a majority get suckered into thinking they can “win” also, but of course they can’t because THE SYSTEM IS RIGGED. It has to be to exist in the first place. It is subsidized borrowing of money.

    Unfortunately, the outcome is defective.

    I have NEVER seen a valid reason for their use in a personal situation. I have seen people try, with the typical reasonings of convenience, liability protection, rewards, float, no interest, other peoples money, safety, less cumbersome, credit score, compilition statements, easier record keeping, less bills to pay, etc.

    Factor in the risks associated with their usage, and the only parties that consistently benefit from CC usage are the companies that issue them.

  84. speedwell says:

    Call me naive, but I could never understand the point of spending someone else’s money in the grandiose hopes you’ll be able to pay them back in the future. Can you foretell the future? No? Then why are you so willing to “spend forward”?

    If you know you’re going to need something, budget and save for it. Have a savings account for contingencies. If it’s too expensive, do without.

    The only reason credit cards exist at all is because someone makes money off the scheme. Are you a sucker?

  85. rotten says:

    trent, thanks so much for creating this website, i learn a lot from you & from other people who left comments…
    i’d like to share my own experience in credit/debit cards…
    i live in indonesia, i use credit cards but i always pay in full & never late…the reason i use credit cards are to get discount & offers for the thing that I need & also for the point rewards
    the competition among banks are cutthroat, there are banks which offer 50%+ discount on some merchants & banks which offer zero percent 12-month installment on some other merchants. i personally used 24-month 0% installment to buy electronics & home appliances when I got married & moved to a house
    i never intend to pay interest to any banks so i try to only use credit cards to buy things that I need which I can pay in full or with no interest whatsoever…
    sometime, there are discount offers for using debit cards, at that time, I use debit cards for buying the things that I need…

  86. thribble says:

    We have a debit card and a credit card. The debit card is used for everything, including big purchases. If we’re flying home to the UK (we live in Australia) or buying a sofa, we just make sure we have enough money in either our debit account or our savings so we can transfer it over. The credit card is held at zero so if there is an emergency (the one I’m concerned about most is a family situation requiring us to be on a flight to the UK at very short notice) we can deal with it without needing to transfer funds around our bank accounts. After all, in an emergency situation you don’t want to be thinking about which bank account it’s best to take the money out of. My father’s advice from years ago still rings true – wherever you are in the world, make sure your credit card limit covers the cost of a flight home at top rates.

  87. BK says:

    I agree — standard credit card is the way to go — better protection and better rewards if you pay in full.

    Fell in love with the Starwood Amex when I read about it at this site:

    http://www.milecards.com/editorschoice.html

  88. I agree with you…but guess would be better to use credit card only if you need it for credit purposes ..else use your own money through debiot cards..what do u say?

  89. sandy says:

    Credit cards can be very helpful and the benefits from using it for day to day purchases can actually help you save money. For instance, rewards points that help you save money on airfare, food or gas are worthwhile. Now with that said, you need to show constraint and balances need to be paid off monthly so as not to incur finance charges.

    Trent, what about doing some research into how you use a credit card affects your credit score? Like is carrying a small balance from month to month then paying it off actually helps your credit score better than just keeping a credit card in your wallet and never using it? I would be interested in seeing how doing different things in life directly affect my credit score. I’m in my early twenties and it’s useful for me to know how to build my credit score to help me in the future.

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