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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