TAG | debit
Apparently the trendy thing for consumers to do now is to use cash or debit cards or checks instead of credit cards. A recent NPR report says that for the first time in a long time, Visa Debit cards surpassed Visa Credit cards. Supposedly, the rationale for using a debit versus a credit card is that if you don’t have a credit card, you won’t spend money you don’t have, because a debit card won’t let you.
I’ve got to admit I find that very silly. The only benefit of using a debit card over a credit card is forced spending control. This can easily be replaced with the slightest bit of willpower or a nagging significant other.
The costs, on the other hand, are somewhat significant. First, if you use a credit card, you can probably earn 1-3% cashback on all of your purchases. Thus, you only pay 97-99% of what the suckers using cash/debit/check are paying. Over time, that really adds up. Think about buying groceries for a family of four over the course of a year: probably $200 a week at least. If you get 2% cashback on those purchases, you get $4 per week, or $108 per year. That’s not bad for just grocery purchases. Second, if you use a credit card, you can help build your credit, which is always a good thing. Third, fraud protection on credit cards is better than on debit cards. Fourth, if you have an emergency, a credit card allows you to buy things that you need. If you cut up your credit card because you don’t have the self-control to use it, then you put yourself in danger of having no spending power when you need it. If you try to spend more than you have with debit, you’ll get nasty overdraft fees. Finally, credit cards allow you to take advantage of the time value of money – you don’t have to empty your bank account with every purchase; rather, you can keep money in your bank account, earning interest, until your credit card bill is due. I know the time value of money is not super-significant, but it’s better than nothing.
Of course, all of this assumes that you have the willpower to only spend as much as you can pay for every month. If you pay less than your full balance, then you’ll probably spend more than the benefits of a credit card. But if you’re already doing that with a debit card, why not just spend as much with a credit card as you would with a debit card? Is it really that hard not to go crazy with a credit card?
