What is better to use a credit card or a debit card?


The answer to this question depends on the person.

As a general rule, if you pay off you balance every month and you are disciplined enough to not buy anything you would not buy anyway, a credit card is significantly better that debit card and both are significantly better than cash. If you have decent credit you should be able to get a no fee credit card, possibly with cash back or some other perk without any annual fees. You just need to shop around.
First and for most: credit cards offer more and better protection than debit cards.

Debit cards are governed under the Electronic Fund Transfer Act, (EFTA) and while that act provides you some protection there are holes in it and the timing of when you are get protected and getting your money back can present problems within itself. If there is a fraudulent transaction the money comes out of your account (usually checking account) right away. It can often take up to one billing cycle or more to get it back even if you prove the card was used fraudulently. In the meantime your account could be drained and you could end up bouncing checks and incurring bounced check fees and late payment fees from people you tried to pay with those bounced checks. Many of those fees will not be recoverable.

On non-fraudulent debits if you have a dispute with the merchant you have to fight that battle on your own. For example if the product is never received or is defective the merchant already has you money and you need to fight to get a refund.

Credit cards are protected under the Fair Credit Billing Act (FCBA). This act provides consumers many more rights. With credit a card no money leaves your hands until you verify the charges. The FCBA requires your card company to remove any charges you dispute until the dispute has been resolved. This is whether it is a fraudulent charge or a dispute with the merchant. The card company will often fight the battle with the merchant for you in the case of defective or missing merchandise. They may even offer and extended warranty or even some limited insurance even if you damage the merchandise yourself.
With either type of card you want to report the problem to the issuer right away. To sum up the difference if it is a debit card you have to worry about the balance in your account and fight to get the money back. If it is a credit card it is the issuer’s money and you let them deal with it.

Your card issuer of either type of card may offer greater protection than mandated by the law, but they cannot provide you less than the law requires. So check your contract to see what protection your card offers.
Other benefits Credit cards may offer

Shop around and you can get cash back on every purchase. Lots good deals out there, best I have seen is 2% back on everything you buy. Depending on your spending habits you might be better off with a card that pays 5% on the things you buy most often but 1% on everything else. If you are disciplined enough to pay off your balances every month you should be using your cards for every purchase. At 2% if you spend $20,000 a year on your credit card you just earned $400 in free money.
Many credit cards offer extended warranties and/or theft protection on the things you buy.

Many credit cards offer collision protection when you rent cars with card so you can waive this expense when your rent a car.
Used responsibly credit cards help you build credit and increase your credit score.

Warning
Credit Cards may not be for you if you don’t pay the balance off every month, the interest and fees can be quite steep. They also are probably not for you if they will cause you to buy more than you otherwise would buy and you start living beyond your means. Your goal should be spend less than you make each month. See Pay Yourself first. Credit cards give you the ability to spend more than you make each month so they should only be used by people that have the discipline to live within their means. You do not want to carry a balance and pay credit card interest

Here are some articles to read on safety difference between credit and debit cards.
http://blog.credit.com/2014/01/credit-cards-vs-debit-cards-whats-safer-73286/

Here are some more articles on which is better Credit Card or Debit Card.


Comments

Post a Comment

Popular posts from this blog

Should you ever turn down the opportunity to earn more money to avoid higher taxes?

I am often asked that question in various forms especially around this time of year when people are thinking about their taxes. Sometimes it is a question from someone considering a promotion, new job or simply taking on overtime, other times it is people worrying about making too much money in their investments or their 401K and IRAs growing so large that they will have a “huge tax burden”. Granted our tax code is way too complicated, and many people including some financial planners, don’t fully understand how it affects your investment . I even head a financial planner the other night come up with a cute (but incorrect) phrase, “Your IRA is simply and IOU to the IRS.” While it is true you owe taxes on your traditional IRA and 401k only a portion of it will go to the IRS, less than 40% even with the worst planning. How much goes to the IRS depends on how well you plan, see my next article that talks about reducing taxes through planning.   In the meantime what you owe the IRS s...
Read more

Financial Emergencies, Be Prepared

I apologize for taking such a long break from posting, but after all the stories about the number of people living paycheck to paycheck during the government shutdown, I decided to start posting again. If you are a regular reader and have followed my advice you may not need this one, but please pass it to anyone you know that might; because; clearly, there are a lot of people that have not gotten the message. The first post I made on my bog was titled Pay Yourself First . Not doing so is a disaster waiting to happen. It is important you practice this philosophy all the time, not only to save for retirement but also to make sure you have something in case of an unexpected interruption in your income stream or other financial emergency. The economy is rolling along quite nicely at the moment, yet a lot of people still are not putting anything away for a rainy day. I feel empathy for all the government workers that went without paychecks but hope this is a wakeup call for them and f...
Read more

The Economy is going down and the stock market is going up what’s that all about?

First you have to understand the Economy is not the Stock Market. The economy is loosely defined as the activity related to the production, consumption and trade of all goods in services. So, in simple terms, it is you going to work, making something or providing a service, earning a paycheck and then using that paycheck to purchase goods and services provided by someone else. Multiply that by all the other people, companies, non-profits and government entities out there and you have an economy. The Stock Market is a market where you can buy or sell stock (or shares) of companies. In the simplest sense their prices are decided by what a willing buyer and seller agree to. People are often setting the price they are willing to pay based on how they think the company will perform in the future, so it may not be as important to them how the company (or economy) is doing right now as long as they are convinced it will do better in the future. They are buying on the belief the company ...
Read more