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Ask Jean: Debit or Credit?

The payment terminalI want to gain better control over my money by using my debit card instead of my credit card, but am not sure what the different effects will be on my credit and finances. Can you explain the differences? – Megan, Ohio


There are some pros and cons to both credit and debit cards – let me break it down.

Debit Card Pros

·     You’re automatically living within your means. You’re spending your own money that you already have, which means don’t have to worry about paying interest.  (The only exception is if you overdraw your account.   Make sure you have told your bank you do not want overdraft protection.)

·     You tend to spend less. That’s right – debit cards can make you more frugal. When using a debit card instead of a credit card for purchases, you’re likely to focus on spending less. (You also tend to spend less when you use cash instead of your debit card – and even less when that cash is a larger bill.)

·     No late fees. Without a bill, you’re also without a due date – meaning those pesky late fees won’t be an issue.

Debit Card Cons

·     Fewer perks. Perks like miles have actually picked up a bit on debit cards, but they’re still greater on credit cards.

·     Overdraft fees can add up. If you don’t opt-out of overdraft protection, fees for spending more than you have can add up.   Another reason to just say “no.”

·     Administrative hassles. If someone steals your card and makes purchases on it, you’ll be able to get that money back. However, it can take a while – sometimes a week – and when that money is needed for paying bills and household expenses, you can end up incurring more expenses just to keep on top of things until you’re reimbursed.

·     Account blocking. Places like hotels and gas stations will often hold a certain amount of money in the case that something were to happen. When you use a debit card for that hold, the block can make it tough to spend your own money even if you have plenty.

Credit Card Pros

·     Track Record. Building up a credit history is key, so when it comes time for you to take out a home or car loan, the lender can decide if you qualify and what kind of interest to charge you.

·     Rewards. From frequent flyer miles to cash back, credit cards often offer consumers excellent rewards just for using their card.  However, it’s important to remember to watch your spending, still – research shows people tend to spend more on rewards cards than those without.

·     Consumer protection. If you are legitimately dissatisfied with a purchase or a service, and would like to withhold the payment, your issuer will generally stand by you.

·     Zero liability. If your credit card information is stolen and there are unauthorized transactions completed, after you report the theft you don’t have to worry about not having access to your funds while the bank sorts out the problem.

Credit Card Cons

·     Interest. This is a big one. If you don’t pay your full balance each month, you’ll rack up interest charges – 29 % is not unheard of.  That’s an expensive ouch.

·     Late fees. If you don’t pay your bill on time every month, you’ll not only have to pay a fee, you’ll also take a hit on your credit score.

·     Temptation. When you use your credit card, it can feel like it’s not “real money.” Customers tend to spend more on their credit cards than they do on their debit cards or with cash, and uncontrollable spending will quickly turn into excessive debt.

So, in answer to your question, you gain control of your money by using that debit card for every day purchases — and making sure you always know how much money you have in the account.  (Online banking is a big help!)  For the benefit of your credit score, however, you should not only have a credit card, you should use it for a small purchase once a month, then pay it off in full.


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