Friday, September 16, 2011

Debit vs. Credit

I'm a debit card kind of gal, so I read this article, Five Places Never to Use Your Debit Card and the comments, with interest.

First, we use debit for 99% of our day to day transactions because we find spending present dollars (vs. future dollars) to be a key part of our personal finance plan to avoid and reduce debt and to live within our means.  We also like debit rather than cash because we find that it is much easier to track our spending.  I recognize that there are lots of folks who use credit wisely, never pay any interest, and collect rewards left and right.  I, myself, used credit cards for years and paid them off without incurring interest, but when I switched from credit to debit I found that I reduced my discretionary spending by 50%.

  • Rental or security deposits. If you have to put money down to rent a car or heavy duty home improvement equipment, try not to use a debit card. Why? Because the business will actually take the money out of your account in the form of a security deposit. You’ll get the cash back when you return the car or equipment. But with a credit card, the money is just “frozen” but not actually charged and you won’t ever notice it’s gone.
I have run into the hold problem both with renting cars and at hotels.  And my husband has run into this problem renting tools and equipment.  So, I have to agree with this one.  We actually, now, use a credit card when traveling to avoid this problem. 

  • Restaurants and bars. There are way too many prying eyes around a dining establishment to trust using your debit card. Apart from the risk of having your card stolen, restaurants are one of those rare places where someone actually walks away with your card and you don’t see them for a few minutes. Much better to use cash when dining out.
Never had this problem and we eat out and drink out with great frequency.  I actually prefer to use debit in this situation, because I want to know how much I'm spending in this category.
  • Regular payments. Businesses love to get their sticky little fingers on your debit card number so they can extract dues straight from your bank account on a regular basis. Whether it’s a gym or your insurance company, you’re better off using a credit card. That’s because if there’s a dispute, the business won’t take the cash right out of your checking account if they don’t have your debit card number.

I agree with this one, it is much better to push payments rather than to allow businesses to pull payments from your checking account via debit or auto payment. 

  • Wi-Fi hot spots. Never use your debit card for an online purchase while at a coffee shop or other business that offers free Wi-Fi access. Many of those businesses have unsecured wireless connections, so it’s much easier for hackers and scammers to log on and steal your data.
This makes sense to me. 
  • Any retail outlet where you choose the “credit” option. Debit cards allow you to choose between a debit (having cash taken straight out of your account) and a credit transaction (where the money will be taken out but it could be a few days later). For one, credit purchases cost the retailer more cash in swipe fees, so you could be hurting a small business owner. But the real problem is the delay when choosing credit – you may forget the purchase and not account for the money. That can lead to an overdraft situation and the onerous fees that go with them.
This information is outdated, swipe fees have recently been capped by Congress so the cost to retailers has been much reduced.  I patronize quite a few small businesses but I always opt for credit when using my debit card for security purposes. 

As for the overdraft issue, I recognize that some people struggle with this issue, they use their debit card and they don't think twice about it.  I, myself, use a check registrar and log each debit transaction just like I would for each check and I do so about every other day.  With on-line and mobile access, I almost always know how much is in my checking account and I generally keep at least $500 extra as a cushion.  For me, using my debit card and then reviewing those transactions online, writing them down in my registrar, thinking about them, is a big part of my system for living within my means.  Yes I have to pay attention to my debit card use, but that is exactly why I use debit and not credit.

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