Credit or debit?
This is a typical question many of us get while at the register. If you’re not paying cash, and you’re not going through the antiquated ritual of writing a check, then you have likely decided to pay with a credit card or a debit card.
We each have a preference. Whether or not that’s based on habit, or based on a thorough, analytical assessment, is an interesting question. I suppose it’s the former for many people, who simply do what they are accustomed to doing. Frankly, once we get into the habit of doing something, it’s often a matter of putting forth the effort to make a change. Before we do that, we have to have awareness of a need to change, and the motivation to find out the different courses of action in the first place.
Honestly, in this case of credit vs. debit, I’ve simply gone with habit. This isn’t typical for me in terms of personal finance, as I do appreciate the opportunity to learn different – and better – ways of doing things. I’ll tell you later what I usually use 🙂
Before that, let’s take a moment to consider some differences between the two:
OPM vs. Your Money
- Credit card: you’re really borrowing from a financial institution, and paying back later when you pay the credit card bill. In the interim, you can take advantage of float, keeping your money for a while before paying the amount due.
- Debit card: you’re paying your own money immediately, deducted from your bank.
- Credit card: if you don’t pay on time, you’ll incur interest charges.
- Debit card: you’re paying with your own funds right away, so there is no interest paid.
Risks from Unauthorized Misuse
- Credit card: if someone takes your card or uses your #, you could be liable for charges. However, there are limitations of up to $50 and you don’t necessarily have to find out and report immediately.
- Debit card: your liability can be up to $50, but that can be the case when reported within 2 days. Beyond this time frame, liability for unauthorized purchases with your card may be higher (note: for both credit and debit liabilities, be sure to check for official liabilities – these are just general guidelines)
Risks from Cardholder Misuse (i.e. having little or no discipline)
- Credit card: your limit is basically your line of credit. Not paying bills or paying late can negatively impact your credit history, which can be a big problem
- Debit card: your limit is your account balance. Maxing out your account balance can cause other checks to bounce, costing you money and causing hassles. But, irresponsibility might not impact your credit history like it would with a credit card.
These are just some of the major differences, and there are many others between credit and debit cards that can be considered. For example, a credit card might offer you some additional protection in terms of rental car or travel insurance.
What have I done? I mentioned above that I would share, and for me it’s been credit cards. As I’ve posted before, credit cards and discipline go together. Since I have the latter, I feel like I can use the former.
That’s what it comes down to for some of us: self-discipline. One might ask what are the advantages using a credit card, and I think that if folks feel like they have discipline and can understand the value of debt-free living, then credit cards can a be a great financial tool to use for a variety of reasons I’ve discussed before elsewhere. Otherwise, maybe debit cards work well. Also, if people just want to keep it simple and have everything flow out of one account, debit cards might achieve that more directly. Moreover, if your debit card is attached to an online checking account, you can easily monitor the status of your account in real-time from your computer or mobile phone.
Of course, a case could be made for doing both – using a credit card and a debit card, depending on the situation. I suppose there is no perfect or “correct” method, just a matter of what fits your situation best. The key is doing just that: taking a little bit of time to think about what will work best for you. This way, we maximize value and convenience for ourselves.
My Questions for You
Which do you prefer: credit or debit? Or, do you use both?
Why do you handle credit vs. debit decisions the way you do?
Do you have any other advantages/disadvantages of each to share, from personal experience?