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Lately my parents (my dad in particular) have been telling me that I need to start using credit cards to pay for everything, rather than debit cards and cash like I usually do. Their rationale is two-fold: 1) with debit cards when you pay the money is deducted right away, so if you become the victim of identity theft there's no window of time for you to notify the bank and remedy the situation. You could fall prey to overdraft charges very quickly, whereas with credit cards you have more time to notify the company and have the payment canceled. 2) with credit cards you can earn points, cash-back, frequent flier miles, blah blah blah, depending on the company.
They say that, as long as you use self-discipline, don't spend beyond your means, and always pay in full at the end of every month, you'll never pay any interest and therefore there's no harm in using the credit card.
BUT, at the same time, I've heard other financial advisers say that it's best not to use credit cards because they cause you to overspend and can lead you quickly into an endless spiral of interest (if you're not careful).
What do you think? Which is really the wiser method?
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We have been CC free for many years now and honestly it was the best decision we ever made.
Unless a person has the discipline to pay off the total balance EVERY month you end up paying interest on items that are either long since consumed, tossed or depreciated in value. Once you are paying interest you are no longer on the "winning" side of incentives credit cards give.
If a large scale emergency were to arise we could tap into our homes equity and at least the lower interest would be tax deductible.
I have NEVER had an issue having my money returned to me when a debit card # has been stolen (probably 4-5 times over the last decade between the two of us) and any fees accrued due to it waived.
For us, it's a no brainier. We do not hold the discipline to use CC to our advantage and I honestly don't think people most do.
We had an issue with our debit card being used for transactions we didn't approve and there was no problem with getting the money refunded and the transactions fixed, though it was a PITA to get a new debit card for DH. Our credit cards have saved our rear ends more than once just this year so I will never talk bad about credit cards. Yea, we have spent some "fun" money but we've also had to put all my school expenses, over $1000 worth of car expenses and some other misc stuff on them.
Credit cards build your credit, debit cards don't. Thats why I refuse to close any of my lines of credit and my credit score is as high as it is. We put money on them, we pay them every month (not pay off) and it helps your credit rating. Personally, I think the only way to absolutely guarantee you don't overspend is to use cash only. Even with a debit card, you can move money over from savings to checking. With cash, you've only got what you've got.
The wiser method, IMO, depends on who is involved. Years ago, we used credit cards for rewards. We realized we were overspending and stopped and went to envelope budgeting for a long time. Now we are back to a credit card. We are currently financially disciplined enough to be able to do it. Our credit card has NEVER carried a balance and it's always paid off bi-weekly. It just depends.
I agree that credit cards are good if you pay off the entire balance each month. You actually, in a way, get paid if you do that. I have a CC that gets cash back. After I accumulate a certain amount I request the check. Hubby and I bought 2 beautiful cherry wood bookcases for our office with the cash back reward money.
The problem with credit cards is that it is easy to overspend. The problem with debit cards is that fraud occurs more with them.
As for going completely CC free, it may work to your disadvantage. It could actually lower your credit score. Then again, having a lower credit score is better than being in debt.
I think you can easily over spend with credit cards. But if you can discipline yourself enough, and pay off balances quickly, it could be worth it. A good line of credit is important when you want things, like a house or new car that you can't afford to pay all cash on.
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That's all fine and dandy for some people, but then you have people like my husband and I that can't possibly get a bigger credit card allowance then what we have right now, which is 300.00 and just not practical for even paying online bills. We have two vehicle loans, an unsecured loan through the bank (which our bank account could use to overdraw from if we had enough in it lol... 2 more months til we can fill er back up!), and that one credit card. We aren't allowed any more than that because of debt to income ratio. Besides the fact that the lender for the van wont even allow you to pay with a credit card, it has to be check or debit.
We also had a problem with the debit card number being stolen one time, had no problems getting the money back, in fact they didn't even get far enough to actually take money because the bank put a stop on the card. We just had to pay for new debit cards, still really wasn't fair to have to spend $10.00 but whatever. I also had someone steal the credit card number and use it for many small purchases, such as tolls in canada. Seeing as I've never BEEN in canada, it was pretty interesting to see the charges on it. It took longer to get that money back than to settle the debit card issue, including speaking to lovely outsourced people who don't know English much past the name of their company. AND then they signed me up for some stupid identity protection program and wouldn't take no for an answer about it, which would have been 9.99 a month. I just let it sit for 30 days then cancelled when the 'trial period' was over.
I guess it just depends what company/bank you work with.
Last edited by Repti.Mom; December 9th, 2011 at 09:36 AM.
DH prefers cash. he likes knowing exactly how much he can spend, and with this bank account there's always more in there than he should spend...
That said we will both end up with credit cards next year (the kind for people with awful credit) since our credit sucks, and I'd like to have it improved before his son reaches high school on the chance that DSS ever needs something that's based on his family credit (same goes for our own children, but DSS reaches that much sooner than anyone else will).
DH could care less about his credit score anymore... but I do. So we'll get a small card for each of us, and pay it off before the bill arrives monthly. He'll use his for gas, I'll use mine for groceries (since he drives for work, and I shop to feed us) and it will help me out since I do the budget and I'll be able to see what he's spending on gas, and what I'm spending on groceries (since sometimes no matter how hard I try, I can never find the receipt)
I too think it depends on the person involved. I've learned a lot of lessons with a past credit card, one I never care to repeat.. and shouldn't have to since we HAVE money, I didn't back then. |And since the cards have limits.. we can't go over them.
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Last edited by plan4fate; December 9th, 2011 at 11:00 AM.
i refuse all debit cards and won't allow my bank to issue anything other than an ATM card to me. Beyond the lack of time to address identity theft issues (which are not the only problems with debit cards) your legal rights are very different when the funds leave your bank acct via a debit card than when it's a charge you can dispute with a credit cards (which is subject to a $50 cap liability). Even where a merchant makes an honest mistake (which happened to me once, hence my hatred of debit cards ) and takes out 2x, 3x, 10x what they should have your bank is under no obligation to put the money back into your acct until the merchant processes refund (and then may be subject to days/weeks of delay) or you can prove it was identity theft (which is also not a quick process if bank requires police report, etc), bank will not notify you generally (unless you're enrolled in & bank offers a notification option) when acct is overdrafted and will allow you to bounce checks (and then charge you fees for the overdraft to your acct even when it's not your fault).
Anyway, if I haven't scared you away from using debit cards yet I can share an even more horrifying story of what happened to a friend of mine after her identity was stolen via her debit card used in a restaurant, her bank checking & savings accounts were cleaned out and THEN the bank allowed the identity thief to open a line of credit on her house online for $10K...and then bank fought her for 3 months before conceeding that they should put the funds back into her account and not hold her responsible for the line of credit....
Nope, i'll stick with credit cards....
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I've never used or owned a CC and I'm glad. DH used a CC back in his first year of college (at 17-18 years of age) and did get a little crazy, but paid it off. We like using debit or chash. Can't go over. Yes CC builds credit, but there are other ways to build credit like paying off school loans, car loans, mortgage and other bills on time. You can also take out small loans, like 1K and pay back quickly to build credit. We do have security measures in place so that someone can't use our debit card (which doesn't mean it still can't happen), and our bank is really great at refunding things that shouldn't be on there. That has happened twice and it was fixed within minutes.
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