“I don’t like debt”

When paying for anything, especially medium to large sized purchases it pains me to see people using their debit card instead of a rewards earning credit card. The mentality of “I only use money that I have” is great! That’s what budgeting is all about. You can be a responsible spender and earn rewards on all your purchases. There are benefits to using both but also risks to only using your debit card.

Debit Risks

Using your debit card is the modern way of writing instant checks. You’re giving permission to an entity to take money out of your direct account. This can be especially risky, what if they make a mistake? Double charged? Obviously we can dispute and undo it right? Now you have to wait 3-5 days for your “refund” for something that could have been avoided. Banks act quicker with credit card fraud since it’s their money they are losing. If it’s your debit card they take days to give you your own money back.

Fraud. When someone has access to your numbers and PIN, the bank takes your pin as your signature. Once it’s pin authorized it’s like you gave permission to authorize no matter who was behind the counter.

Credit Risks

One of the main risks of using only a credit card is overspending. It can be easy to keep using your card when knowingly you will never “overdraft” since you’re technically borrowing money for the month. If you’re extremely paranoid about overspending you can pay off your credit card each week, that way you can stay in check of your finances, see how much money you have left, and earn rewards.

Credit Benefits

The #1 credit card benefit is the rewards cards give for spending. A generic 2% cash back credit card is giving you a 2% discount on every purchase if you think about it. Some cards even have bonuses for certain stores, monthly promotions, or if you reach a certain spend threshold.

The second best benefit is zero liability protection, so if your card gets stolen you can get a new one immediately and purchases that weren’t you will be undone instantly. Better than having to wait 3-5 days for your money back!

I like to think of a credit card like a proxy it protects and safeguards your real money by paying with someone elses money.

Time and Place

There’s a time and place for everything, unfortunately you can’t use credit for everything. For example some utility providers charge a “processing fee” when paying with credit cards. The rewards earned in these instances will not be worth the fee paid. Usually these fees will be over 5% which completely undoes the rewards and more.

Some smaller shops charge fees for using credit cards as well. You pay for convivence I guess. Some only take cash but the odds are always slim. This is why we carry a small amount of cash with us just incase :).

Will you continue using your debit card for all your everyday purchases? Adapting to change is difficult but the rewards you will gain are greater.

Thank you for reading and see you again next Sunday,
– Pablo