Credit, Debit or None of the Above?

[Nords]

What do you think of the advise in this article? How do you use your cards?

I've had a NFCU ATM card since the mid-'80s, and only last year did I realize it was a debit card. That article reinforces my bias against debit cards, so I guess it'd be better to read an article that has something positive to say about debit cards (other than as a source of ATM cash).

Somehow I've accumulated four credit cards-- the top two are a 2%-rebate Amex which I try to use everywhere, and a 1.25% Mastercard which I use if the Amex isn't accepted. (Now that I can use the Amex at Costco's gas pumps, I don't use the ATM card as a debit card anymore.) The third is a USAA MC that I rarely use (but which has an obscenely high limit for home-improvement projects) and our kid's Citi card. When she gets her own card then I don't know if the Citi card is worth keeping.

We rarely use cash. A $20 bill will languish in my wallet for months. Good thing they take so long to get moldy or brittle.

The current Kiplinger mag has an in-depth article on credit vs debit cards. Might want to check it out.

Oh, hey, thanks a lot, let me get that for you:
Battle Royal: Credit vs. Debit - Kiplinger

The upside of debit
If you prefer to pay as you go, or if you're trying to get out of debt and control your spending, a debit card is the way to go. You don't have to worry about overspending because the money gets sucked out of your account right away. But that can be a pitfall if you are in an overdraft-protection plan.
[...]
For added discipline, use a debit card for small items. Stay on top of your spending by keeping a written tally of your purchases -- just as you would with an old-fashioned check register -- or by signing up with your bank to get notices of your account balance.

If that's the best they can say about debit cards, then this weak dissonance does nothing to persuade me to use one...

 

[Texas Proud]

We don't have debit cards at all, and refuse them when offered. But we do use credit cards.

The distinction is that the consumer protections are so much better with a cc than debit card.

If somebody steals my cc, so what? I have to write a letter, perhaps fill out an affidavit of forgery, but I'm not out any money. With a debit card, I'm out the money until the bank's investigators, who may or may not be competent, decide on who takes the loss. With a cc you also have a lot more lead time to report the unauthorized use (60 days) than with a debit card (2 days) after learning of the unauthorized use.

Frankly, I'm puzzled why anyone would use a debit card when they have the option of using a credit card.

ditto...

I also refused the debit card.... except for the Capital One account that we opened to move our account... they said we could NOT get just an ATM card... SOOO, I have not moved the rest of the account to them (like my paycheck etc.)... and would close the account except my wife wants a second ATM card when she travels 'just in case'...

 

[smjsl]

I buy so little "stuff" I have no interest in cash-back rebates.

You may want to check out all your monthly expenses to see if they accept credit cards. Things like cable/phone/gas/water/electric. Over time I found more and more start accepting credit cards without extra fees. I also pay local taxes with my credit card (they charge no fee). If you add groceries into the mix, even without buying any "things", you can probably get $500 charged per month, which is about $120/year at 2% cash-back - well, maybe this is still small potatoes, but I thought I'd mention this anyway.

Regarding ID theft, I am not sure credit card information + your name gives up too much info about you (it lets someone use the credit card for you but then you are liable for $50 at most)... As for ID theft itself, SSN and/or birth-date are the things you should guard the most (and I guess your mother's maiden name ).

 

[scrabbler1]

You may want to check out all your monthly expenses to see if they accept credit cards. Things like cable/phone/gas/water/electric. Over time I found more and more start accepting credit cards without extra fees. I also pay local taxes with my credit card (they charge no fee). If you add groceries into the mix, even without buying any "things", you can probably get $500 charged per month, which is about $120/year at 2% cash-back - well, maybe this is still small potatoes, but I thought I'd mention this anyway.

Regarding ID theft, I am not sure credit card information + your name gives up too much info about you (it lets someone use the credit card for you but then you are liable for $50 at most)... As for ID theft itself, SSN and/or birth-date are the things you should guard the most (and I guess your mother's maiden name ).

I use automatic bill payment to pay my utilities as I have been for the last 15 years or so. It is on autopilot so I don't have to think about it and don't need to make an extra step (i.e. credit card) for payment.

I live in a co-op apartment complex which pays the taxes, water, and gas from my monthly maintenance check. That check BTW still has to be mailed because they don't have any electronic payment even though I mail the check to my managing agent's BANK! I have asked them a few times to set it up but they won't do it.

I have to go to the ATM to get cash anyway because some of my hobbies and activities (all legal, thank you) are cash-only. No big deal to do that about twice a month, the same way I have been doing it for the last 25 years.

When I said ID Theft, I was also referring to the broader theft of debit and credit card numbers. Those too-frequent stories of devious merchants and others stealing those numbers to make unauthorized purchases scares me, and I don't need the aggravation of undoing that. I'll stick to cash for my small, everyday purchases.

 

[ERD50]

I use the debit card for all my little monthly expenses, including groceries, haircuts, and other monthly incidentals. I use my credit card for travel and large purchases that I pay off monthly.

I'm curious as to why you make that distinction? What are the pro/cons for you to do it that way?


-ERD50

 

[Pete]

Credit cards have a cost that probably finds its way into the price of items we purchase. If there were lower prices for using cash I probably would. The convenience, protection, added warranties, rental car insurance, and rewards for using credit cards are too tempting. I use credit for everything and pay it off each month.

 

[happy2bretired]

I'm curious as to why you make that distinction? What are the pro/cons for you to do it that way?


-ERD50

My debit card is not attached to my checking or savings account at all. Not even the same institution. I bank with a Credit Union and my debit card is not part of that credit union so if someone gets my debit card/debit card number, all they could get would be what my balance is at that time ($600 or less).

I just like the convenience of using my debit card instead of writing checks all the time for small purchases. Another reason, it really keeps me focused on not overspending for the month like I could do if I used a credit card only.

It just works for me.

 

[tinlizzy]

So no one has a high yield checking account? Just curious as to why, because everyone seems to enjoy the cash back cc's. Because of the potential debit fraud or the required usage?

My checking paid 5% in 08-09, lowered the amount to 4% Jan 2010, but still....I like the extra $75 to $100/mo.

 

[smjsl]

I don't use high-yield checking accounts because there are too many hoops to jump through, one of which is usually a minimal number of transactions per month, and I don't normally have that many per month.

 

[MichaelB]

We use credit cards as much as possible – the rebate is cash in the bank. Otherwise we use cash. Still a few bills are paid by check, also a few paid by direct debit – and they make me uncomfortable.

Even though the federal regulations limit liability for both credit and debit and the protections are quite similar, there is one big difference. A bad cc charge must, by law, be set aside once you dispute, and the burden or proof is on the party presenting the charge.

OTOH, a bad debit transaction is money taken from your bank account, and the burden is on you to convince the bank to return it – and this is very difficult. For that reason we do not use debit cards.

 

[youbet]

I just like the convenience of using my debit card instead of writing checks all the time for small purchases. Another reason, it really keeps me focused on not overspending for the month like I could do if I used a credit card only.

Although a credit card also eliminates "writing checks all the time for small purchases." And the monthly statement for my credit card causes me to scan the charges for trends and compare the total to my budget.

Why your concern with overspending with a credit card? Just the concern that if the credit is available you'll tend to use it?

I don't have a problem with the concept of debit cards, despite chosing to not have one. I just keep fretting that because they seem to be popular, I'm missing something, some advantage, and wondering if there isn't a reason to accept one of the offers that arrive in my mailbox frequently. So far, for me, I don't really see any good reason to have one. I'm not tempted to use the "credit" feature of my credit card and it does everything, and more, that a debit card would

It just works for me.

Now there is a reason I can understand! And that makes sense. Hey, if it works for you, go for it!

 

[ERD50]

So no one has a high yield checking account? Just curious as to why, because everyone seems to enjoy the cash back cc's. Because of the potential debit fraud or the required usage?

My checking paid 5% in 08-09, lowered the amount to 4% Jan 2010, but still....I like the extra $75 to $100/mo.

How much would you keep in your checking account if you didn't get that interest rate?

If it is less, then the difference would be in your long-term asset allocation, probably earning (over the long run) 7-8%. So you could be losing 3-4% on that balance, really.

And it depends on your numbers. I put a lot on the card, so 2% on a lot versus 4% on whatever their upper limit is would be the calculation I'd need to make. And for all the negatives discussed about debit cards (I assume these are always tied to debit cards?), that just does not sound attractive to me.

YMMV. -ERD50

 

[Rustward]

This site has a little writeup summarizing a credit card authorization.
How Credit Cards Work
All this happens in the time between the swipe and the printing of the receipt and signature slip. I believe most theft occurs by trusted people inside the merchant's network, payment gateway, acquiring bank, or issuing bank. A merchant skimming cards is going to be detected pretty quickly as fraud analyses begin to see online gambling and music downloads on accounts that have historically had a different pattern of activity -- perhaps utilities, gas, groceries, doctors and prescriptions. Take a given set of cards that have known fraudulent activity and look for something common to them all -- a recent merchant -- kinda singles out that merchant. Skimming does happen, though. Some fraud analysis is done during the authorization process and some outside of it.

1. The cardholder initiates a purchase from a merchant.
2. The merchant access the Payment Gateway and transmits the customer’s credit card and purchase details.
3. The payment gateway looks up the merchant’s acquiring bank and ISO details and forwards the transaction to the appropriate Payment Processor.
4. The payment processor determines the Issuing Bank’s ID and sends the transaction information to that bank.
5. The issuing bank verifies the customer’s account status, open-to-buy limits and security details. If everything is in order, the bank deducts the amount of purchase from the cardholder’s available balance (open to buy) and transmits an authorization code back to the payment processor. If there is any problem with the transaction, the issuing bank transmits a “transaction declined” message. In cases of fraud, the bank may also issue an order to pick up the card.
6. The payment processor passes the approval or decline code back to the payment gateway.
7. The payment gateway passes the approval or decline code back to the Payment Gateway.
8. The Payment Gateway displays the message to the merchant who either completes or terminates the transaction.