Why Credit Trumps Debit

As with many things online, there is endless debate about whether to use debit cards or credit cards. What you choose depends on your preferences and your situation, but you must educate yourself so that you can make an informed decision.

The Debit Trump Card

All this debate is meaningless if the Debit Trump Card applies to you, as it does to Dave Ramsey. The Trump Card is a philosophical one. If you align with Dave Ramsey’s views on debt – that its evil, terrible, immoral, and should be avoided as much as possible – then you don’t really have a choice here. If you’re going to use plastic, its going to be a debit card. Ramsey holds that you should not use debt to make purchases because using debt is not how God would want you to manage money – it makes you a “slave to the lender” (which, I argue here, it actually doesn’t). Ramsey, I believe, is partly right. Credit has risks. Risks you don’t take when using debit. You can’t get into debt with a debit card – if you don’t have the money, the card won’t work. It can be very easy to get into debt with a credit card. The Debit Trump Card doesn’t apply to all of us, though. Many of us are perfectly comfortable with using credit for purchases, so let’s take a look at the benefits credit offers.

Rewards

This is a big one for me. For quite a while, the Chase Freedom card has had the best rewards program I could find without paying an annual fee. Other cards, it seems are starting to catch up, like the Discover “It” card and the BankAmericard Cash Rewards card. We use our Chase Freedom Card for everything, racking up tens of thousands of points each year, which has allowed us to buy a really nice blender and an iPad mini for free. No debit card does that.

Interest Rates

On the surface, this doesn’t sound like a benefit, and its not, but I want to highlight it because when you are in a pinch and need to make a purchase (e.g. car breaks down), its nice to have a card with a low interest rate. We are members of USAA, which has some of the best credit card interest rates around. As far as I know, they’re unbeatable (my USAA credit card is 9.9%, compared to Chase’s 15.3% and many that are higher). This isn’t a major sticking point for me, as I’ve always paid the balance off. Who cares what the interest rate is if you never have to pay it? If you do have to carry a balance, obviously you would want to shop for a card that has the lowest interest rate. I haven’t yet, so I focus more on rewards.

Get a Big Brother

And I don’t mean government surveillance. Credit cards give you protection. Did you have a big brother or sister in Middle School or High School that protected you? No one would mess with you when you were a freshman because your brother was on the varsity football team? While credit cards don’t scare the bad guys off, they do have your back. This is the best reason of all to use credit. Comparing rewards programs and interest rates that differ by 3-4% are nothing compared to this. This is a real email I got from Chase just a few weeks ago.

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As I’m in the Midwest, I obviously didn’t try and make a $50,000 purchase in Florida! Chase knows this and put a stop to it for me, quickly closing the account and sending me new cards with new numbers. Someone (who is really dumb) tried to use my card to make a quick mountain of cash. Had they tried just pulling a few hundred bucks, they may have had better luck. Credit cards are great at stopping stuff like this because its their money you’re spending. With debit cards, its your money, so the bank doesn’t really have a reason to care. Even if the crook did get away with pulling a few hundred bucks out of my account, I’m not liable for it.

In today’s world where hackers can get account information weeks before they are caught, its better to have a big brother that will go to bat for you. Even the largest companies with great security, like Target, Home Depot, and even the Federal Government have all been hacked. This, to me, is what Malcom Gladwell would call the “Tipping Point.”

So when deciding on whether to use credit or debit, first ask yourself if you can trust yourself. Can you have near-unlimited purchasing power and not go crazy? Are you comfortable with borrowing (even though its only for a month) to buy on credit with a card rather than using your checking account money for everything? If so, then shop for the credit card that applies to you most – if you fly a lot, maybe one with airline miles; if you buy a ton of gas, maybe a BP, Shell, or other gas card. If you will have to carry a balance at times, then one with a low interest rate. It all depends on your situation and preference.

-N&$

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