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8 Reasons Credit Cards Beat Debit Cards

Posted By Jim On 07/16/2009 @ 7:09 am In Credit | 52 Comments

This may be sacrilegious to say, as a personal finance blogger, but I’ve never been a fan of debit cards.

I’m biased though. I think I prefer credit over debit because because I’ve never been in credit card debt. I’ve never been on the business end of the tactics used by the credit card industry. I credit to a fear that my mom would be angry with me, rather than my own self-restraint, but either way I have never paid a penny of interest to a credit card company.

That being said, here are eight reasons why I think that credit cards are better than debit cards, which I hope you’ll enjoy arguing with me in the comments!

Reasons Credit > Debit

  1. Fat Finger Miskeys: Since a debit transaction immediately reduces your account balance, a cashier mis-keying in your purchase can have a devastating effect on your finances. It’s not unheard of for a cashier to key in $495.00 instead of $4.95 when they’re under pressure, tired, or stressed. When that happens, it can take days to unravel and by then you could have checks bouncing, your cashflow gone, etc. On credit, it’s not a big deal to reverse a charge temporarily.
  2. Blocking: When you fuel up at a gas station with a debit card, the station will put a block of $50 on your card, even if you put in $5. It’s because they don’t know how much gas you’ll be buying so they have to lock up the maximum amount. This block isn’t released until the gas station batch processes its pump transactions, which MSN says [3] could be several days (see #4).
  3. Renting a car on debit can cause headaches: Renting a car with a debit card [4] can be a huge hassle and the same blocking issue happens, except on a much larger scale. Instead of $50, think $500 and the release is often a week after you return the car.
  4. Overdrafting is still possible (and expensive): A big argument for debit is that it helps you manage your spending, you can’t spend more than you earn right? Well many debit cards now let you spend more than you have in the account and hit you with an overdraft fee.
  5. Slightly weaker fraud protections: Credit cards offer very good fraud protections whereas debit cards offer a slightly weaker set of protections. For example, you are only liable for $50 of credit card fraud if you discover the loss/theft of a card after the fraud occurs. With a debit card, if the loss of the card is reported within 2 business days, it’s only $50. After 2 business days, it’s $500. After 60, you are completely liable. You can read more about how they different on my foundation post about Credit and Debit cards [5].
  6. Most debit cards don’t offer rewards: Some debit cards do offer rewards but the vast majority don’t, since debit card transactions are usually very cheap (think a flat fee of 15 cents). With the fees so low, there’s no room for rewards.
  7. You don’t build credit: This is a pretty obvious negative about debit cards and might not be something you care about if you swear off credit as a whole (though there are several ways a bad credit score can hurt you outside of borrowing money).
  8. Warranty benefits: When you purchase something on a credit card, the credit card company often gives you a warranty benefit that doubles the existing manufacturer’s warranty up to a year. Debit cards don’t usually offer this.

However, one thing can’t be contested, it’s very very difficult to get into credit card debt when you only use debit cards and cash. I can’t dispute that.

Let’s discuss this, shall we? What do you think? Did I miss a reason? Is there a bigger reason why Debit > Credit? Let me know!

(Photo: neilt [6])


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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/8-reasons-credit-cards-beat-debit-cards.html

[3] MSN says: http://articles.moneycentral.msn.com/SavingandDebt/SaveonaCar/10-things-gas-stations-wont-tell-you.aspx

[4] Renting a car with a debit card: http://www.bargaineering.com/articles/renting-a-car-with-debit-card.html

[5] Credit and Debit cards: http://www.bargaineering.com/articles/debit-credit-cards-basics-explained.html#lost

[6] neilt: http://www.flickr.com/photos/neilt/7123758/sizes/m/

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