Are Debit Cards Riskier Than Credit Cards?

by Kevin on November 12, 2009

There was an interesting article earlier this month on CNN Money about the downside of debit cards. I come across articles like this fairly often, but haven’t shared them. I suppose I assume most people have already seen the article. I was reminded a few days ago that everyone doesn’t have time to constantly be catching articles online (neither do I!). I’ve decided to share more articles like this in the future and give you my take on each.

Credit Cards or Debit Cards

I’m a big proponent of safe, intelligent, and regular spending on credit cards. My motto has always been that if you use your credit card like a debit card there is no additional spending risk.

The spending is the problem whether it is a debit card, credit card, or old fashioned cash. The credit card (or debit card or cash) is just the means of spending. If you control the spending you control the problem.

The CNN article hits on some of the reasons that I like my credit card more than my debit card.

Three Issues with Debit Cards

  • My credit card provides me better security protection if stolen. Hopefully I will never have to deal with this, but the better protection is on the credit side. Granted if you react very quickly and report the debit card stolen then the protection is similar. However, what if your bank account has been emptied out? Yes, the bank will eventually credit the money to you. In the mean time you are left with a debit card that doesn’t work (the bank will send you a new one), and your bank account is empty. Then what?
  • My credit card helps develop my credit score when used correctly. Some will argue that you don’t even need a FICO or credit score. To these people I would ask: do you ever plan to buy a home, have homeowners insurance, or have car insurance? Your credit score will affect your rates for these types of products.
  • My credit card offers better purchase protection. My AMEX Blue Cash card automatically gives me an extra year of warranty protection on electronic items I purchase. That’s just one perk on the purchase side of things. Some cards offer a “Lowest price guarantee” where if you purchase a product today and 10 days from now the price drops $100, the credit card company will credit you the difference. That could come in handy during this holiday shopping season.

Die Hard Debit Card Users Will Roll Their Eyes

Those of you that are die hard debit card (or cash) users will likely roll your eyes at me. You won’t see the potential credit card perks; you will see risks and rip-offs.

It would be like trying to convince a staunch Democrat that becoming a Republican is really the best way to go (or vise versa).

I completely understand if that’s you. We are all shaped by our own biases and experiences. I’m also not saying that debit cards are bad. We have debit cards tied to our high-yield rewards checking account. We have to use the cards 10 times in a month to get the 3%+ interest rate on our checking accounts and we gladly do that.

Our Credit Card Experience

That having been said I can’t ignore my own great experiences with credit cards:

  • We have never paid a dime in interest or fees.
  • We’ve earned over $1,200 in cash back over the last three years. This is by just using our credit cards like debit cards — sticking to a budget, acting like we are paying with cash out of our budget categories.
  • The credit card has better protection as we’ve already discussed.

I don’t plan to convince every debit card or cash user that credit cards are better. But maybe someday in the future you will “come across the aisle” to see what things are like on this side.

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{ 8 comments }

Ricky November 12, 2009 at 1:45 pm

I completely agree with you Kevin. Your point about the potential risk of someone cleaning out my checking account is the initial reason we got rid of our debit cards. Like you said, there is built in protection and stolen money will have to be put back. But how long will it take? I don’t really know, nor do I want to find out. We have since optimized our credit usage and obtained a card paying the highest cash back we can find. We never pay any interest or fees either, and we average $200-$300 per year in cash back rewards. Certainly not enough to make us millionaires, but I am getting paid to spend money that I had already planned to spend! It is a no brainer!

Golfing Girl November 13, 2009 at 9:36 am

I have the Amex Blue Cash card as well and didn’t realize I had the extra year warranty on electronic items. I’ve just been using it to take advantage of the 5% cashback on gas, groceries, and pharmacy purchases. Good to know!

I remember the days when your debit card could be declined instead of facing giant overdraft fees. I wonder if we’ll ever see a return to that. If it happens, I think those who are challenged by managing their money would be better off with a debit card.

However, that being said, I think it would be pretty tough for someone to get my pin# and get to my cash in my savings account that’s linked. But I still don’t like the idea of someone charging items to my debit card and me being out that money instead of it just being on paper (like with credit cards). So I agree that the credit cards are safer than using debit.

Ashley November 13, 2009 at 3:15 pm

If you’ve ever gone through the experience of having your debit card information stolen or compromised you’d immediately see the value in using credit cards. I still use both, but rely more heavily on my credit card for the reward points. As long as you pay off the balance on time (and you can make sure you do that with automatic payments through online bill pay) credit cards are worth it. Although I did find out my card will start charging me an annual fee, despite my never keeping a balance, that might change things.

Credit Card Chaser November 14, 2009 at 11:40 am

Yes, even aside from the cash back rewards I get (which is the primary reason I use a credit card) the other benefit is that once I had my credit card stolen and the thief racked up a lot of charges before I could cancel the card and I didn’t have to pay for anything. The credit card company even sent out a private investigator to find the thief and bring them to justice. I didn’t have to do a thing. – Joel

Jess November 15, 2009 at 11:39 am

I agree, debit cards are riskier. It’s always good to use someone else money than using your own hard earn money.

There’s big difference between knowing how to save and knowing how to spend.

Abigail November 15, 2009 at 5:21 pm

I know there are people in this world who have mastered the art of never overdrafting. About 98% of the time, that’s me. But I am a depressive, which has its set of problems sometimes in coping with the outside world. My husband has severe ADD. So there are times when things fall through the cracks. And then overdraft fees hit.

So what did we do? We finally accepted reality and linked our credit card to our checking account. That way, rather than get $30 charges if we took out too much from checking, we get charged $10 and $100 gets transferred into our account. It’s far from ideal, but at least it’s realistic.

Investing 101 For Dummies November 19, 2009 at 2:45 pm

I totally agree that debit cards are riskier than credit cards. Let’s say that someone makes fraudulent charges using your debit card information. Sure, you can get the charges reversed, but in the meantime, that person has already made off with your money. In the same situation with a credit card, all you have to do is fight charges. With a debit card, you’re also fighting for your money to be reimbursed, and before that happens you might have multiple overdraft charges if recurring bills show up and you don’t have extra money to replenish the depleted account.

Frank @ Turn Key Consulting January 20, 2010 at 1:08 am

I will definitely agree that debit card is riskier than the credit card. When it comes to the bigger transactions, it’s better to use our credit card because all credit card purchase is protected by a law known as the Fair Credit Billing Act. The benefit of credit card fraud protection is that we are protected by federal laws as well as more stringent policies by the issuers. It’s even risky using debit cards for small purchases. Not because those amounts will make a dent in our finances, but each purchase is an opportunity for a scam artist to swindle our account numbers…

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