Debit card v/s Credit Card

[Carl73]

Do you prefer to make payments through your debit card or credit card? Me and my wife always have an argument over this. She prefers debit card as "it doesn't brind debt on our heads" and I prefer credit cards. My point is that debit cards create a cash flow problems, especially when used in the end of the month.

What do you think?

[Andrew Gubb]

never had a credit card, they seem useful in principle but potentially dangerous. Also, I mostly earn day-to-day rather than month-to-month, so my cash flow does what it needs to.

[James81]

Out of curiosity, how does a debit card create cash flow problems?

[SatvikBeri]

Credit cards are technically better in every way. You can earn cash back or other rewards (more than with debit cards), you're protected against fraud (more than with debit cards), you build up your credit score (which can save you $100k or more if you buy a house) and you have about a month before you have to pay for purchases on average.

Yes, credit cards can get you in trouble-this is true with many tools that are useful, such as dynamite or forks.

[Mounds]

I use my credit card for virtually all my bills and major expenses. I always pay it off before the end of the month and rack up huge points. In my opinion, it's silly not to! Just set up automatic transfers to avoid the interest charge at the end of the month.

-Tim

[James81]

Originally Posted by SatvikBeri

you're protected against fraud (more than with debit cards),

I see your point in the benefits of credit cards...if people can use them without carrying balances each month, there are plenty of great rewards to having a credit card.

This is the only part that I don't see as true in terms of "more" protection for credit cards than debit cards. You have the exact same protection with debit cards as you do with credit cards.

The difference is that in cases of fraud, they are taking actual money from a debit card and on a credit card they are only taking available credit for you.

However, if you deal with a bank that is good about this, this doesn't become an issue with debit cards as they put the money back in your account rather quickly, as soon as you report it.

If you have trouble with this at your bank, then you need a new bank.

[SatvikBeri]

Originally Posted by James81

I see your point in the benefits of credit cards...if people can use them without carrying balances each month, there are plenty of great rewards to having a credit card.

This is the only part that I don't see as true in terms of "more" protection for credit cards than debit cards. You have the exact same protection with debit cards as you do with credit cards.

The difference is that in cases of fraud, they are taking actual money from a debit card and on a credit card they are only taking available credit for you.

However, if you deal with a bank that is good about this, this doesn't become an issue with debit cards as they put the money back in your account rather quickly, as soon as you report it.

If you have trouble with this at your bank, then you need a new bank.

The legal protections are different. The process to remove charges from a credit card is also generally faster.

Yes, you can say that a bank that doesn't provide refunds on debit card fraud is a bad bank...but realistically, most banks change their services/terms quite frequently, and you never know what's going to happen. With a credit card you have the legal protection no matter what-you just call and ask them to remove the charge, and the other party is legally obligated to prove that it's *not* fraud if they want a refund.

[James81]

Originally Posted by SatvikBeri

The legal protections are different. The process to remove charges from a credit card is also generally faster.

Yes, you can say that a bank that doesn't provide refunds on debit card fraud is a bad bank...but realistically, most banks change their services/terms quite frequently, and you never know what's going to happen. With a credit card you have the legal protection no matter what-you just call and ask them to remove the charge, and the other party is legally obligated to prove that it's *not* fraud if they want a refund.

The bank doesn't handle fraud protection on debit cards. Visa handles that and the banks work with Visa in cases of fraud. So, no, the legal protections are no different between a Visa debit card and a Visa credit card. As you say, the difference is in the nature of the transaction (that is, debit means they took your money, credit means they took your available credit and that available credit is easier to restore than actual money).

I'm not totally disagreeing with you as credit cards are usually faster in handling it (for the reason you said: they charge it back if the person who did it can't prove it's not fraud). But the protection is the same and it's not regulated by the banks at all. The protection is handled by Visa, the issuer of the debit card.

[Mounds]

There's benefits to a credit card that you generally don't hear about as well. Many of them will double the manufacturer's warranty on electronics as well (think about that next time you buy extended warranty).
In my experience, credit card companies treat you like royalty until you can't pay the bill. One time my CC company called me out of the blue and asked, "Did you buy $700 worth of stuff from this website?", to which I replied "NO!". Never saw the charge, never heard anything else about it. Enjoy the benefits but pay off the card on time.

[Angela]

Originally Posted by James81

The bank doesn't handle fraud protection on debit cards. Visa handles that and the banks work with Visa in cases of fraud. So, no, the legal protections are no different between a Visa debit card and a Visa credit card. As you say, the difference is in the nature of the transaction (that is, debit means they took your money, credit means they took your available credit and that available credit is easier to restore than actual money).

I'm not totally disagreeing with you as credit cards are usually faster in handling it (for the reason you said: they charge it back if the person who did it can't prove it's not fraud). But the protection is the same and it's not regulated by the banks at all. The protection is handled by Visa, the issuer of the debit card.

My bank has periodically stepped in to "protect" my debit card -- like when I made an overseas online purchase and they held payment on it and phoned me to make sure it was ok. I've never had a credit card company do that.

[Curtis2011]

Originally Posted by James81

Out of curiosity, how does a debit card create cash flow problems?

You have to have cash up front, and spend it now instead of in the future, in order to buy something.

So, if I am buying a new computer for $1000, then with debit I have to have all of $1000 now, and spend it all now.

If I buy it via credit, and I don't have $1000 now but I know I'll have $250 extra per week for the next 4 weeks, then I can still buy it now but not pay it off for 4 weeks (or however long).


Debit requires the full cash amount be paid up front; credit requires that you can simply pay it off within a time frame.

[James81]

Originally Posted by Curtis2011

You have to have cash up front, and spend it now instead of in the future, in order to buy something.

So, if I am buying a new computer for $1000, then with debit I have to have all of $1000 now, and spend it all now.

If I buy it via credit, and I don't have $1000 now but I know I'll have $250 extra per week for the next 4 weeks, then I can still buy it now but not pay it off for 4 weeks (or however long).


Debit requires the full cash amount be paid up front; credit requires that you can simply pay it off within a time frame.

This problem could be solved with a savings plan. (Not saying that's the best way to do it, but a simple base of savings would solve this without the "risk" factor of not having that 250 per week.)

I actually just signed up for a credit card for the first time in like 4 or 5 years now (I haven't had a credit card for that long, and I"ve never experienced a "cash flow problem" ).

My rule (a very firm rule I'm making for myself that is) is that I am not going to charge anything that is greater than what I have in savings at any given moment.

I don't really feel like I need a credit card or want one, but I know that it'll help rebuild my credit score.

[Curtis2011]

Ultimately credit is just a tool.

If you are wise and responsible with it, it will generally be very useful.

If you are not, it will ruin you.


It is the same with any tool really. You can use a hammer to build a house or to break someone's skull and kill them. It is all in who is using it and for what purpose.

[aelle]

I've only ever had debit cards. They were typically backed up by an organization like Mastercard or Visa, so I got the perks like extended warranties, travel insurance, protection against fraud etc., but they debited my account immediately.

I've never had a cashflow problem - I simply always have a mental estimate of what's on my account and don't spend more than that. I also have a low interests, immediately available savings account for emergencies with a couple thousand euros on it (taken from my first scholarship).

[No Hope]

When I first acquired a credit card back in my late teens, I'd do the old minimum payment plan. It didn't take me long to quit doing that after I noticed all the interest they charge you. That's why I just use credit cards for the convenience now and pay them off ASAP. I earn interest by doing this too and come out ahead. Since debit cards offer thieves a pipeline straight to my checking and savings, the only time I use them is when I make a transaction with my own bank, if need that is.