There are only two options

Let's face it; it isn't safe to carry around large amounts of cash and it isn't convenient to carry around a checkbook everywhere you go. The only two options that are left if you still wish to purchase things is to use a credit card or a debit card. But what is the right choice for you? It's a heated debate about which option is better and unfortunately there's no universal choice for everyone. What you need to do is take a look at why people choose to use one or the other pick whichever option works best for you.

Why do people use debit cards?

Here are a few reasons why people choose to use debit cards over credit cards:

• Visibility of current wealth.
• A good learning tool.
• PIN security.

Visibility of current wealth

One of the main reasons why people choose to use debit cards over credit cards is because they can physically see how much money they have after every purchase they make. This is beneficial because it allows you to tighten up the purse strings when you're running a little low on funds. Some people feel that when they use a credit card to make a purchase it doesn't really seem like they are paying their own money and they're more likely to over spend because of this. However, when they get that little reminder after every purchase of how much money they personally have left, it helps them remember that even though no physical cash is exchanged they're still paying money for every purchase.

A good learning tool

I find that debit cards are an excellent tool for learning how to live within your means. This is because your bank will not allow you spend money that you don't currently have if you set your account up properly. If you not used to living on a certain budget then debit cards are an excellent choice for forcing yourself to live on that amount of money.

PIN security

You are less likely to have as many fraudulent purchases on a stolen debit card than a stolen credit card because the thief will have to obtain your PIN as well as your card. While this doesn't prevent theft 100% of the time, it is still one additional measure of security over credit cards.

Why do people use credit cards?

Here are a few reasons why people choose to use credit cards over debit cards:

• Rewards.
• Temporary interest free loans.
• Build good credit history.

Rewards

One of the top reasons why people choose to use credit cards over debit cards is because of the rewards. There are countless rewards options to choose from, but be careful because not all reward plans are created equal.

After looking through most of my bank's reward plans, I determined the best choice for me was the rotating "3% - Top 3" option. Basically this means that every time I get a new statement the top 3 categories of my expenditures earn me 3% back and all of the remaining expenditures earn 1%. If my spending category distribution changes from month to month, so will the categories earning me 3%.

Note: some reward plans try to lure you in with a temporary high percentage return and then drop to a lower level after the temporary period is over. Unless you plan on only using the card for that short period of time I would highly recommend not signing up for these plans. Furthermore, other cards may boast significantly better rewards as long as you pay their annual fee. If you choose this option, you need to make sure that the benefits outweigh the annual cost.

Temporary interest free loans

Since you don't have to pay for your purchases until your statement is due, you're essentially getting a short term, interest free loan from the time of your purchase until you pay your statement. This can be very useful if you presently don't have the money in your savings or checking account to pay for something but know you will be able to transfer money before your statement is due. What this means is that you can leave your money in an account that pays higher interest until your statement is due. If you keep your money in the right accounts and transfer funds only when it is necessary, this additional interest can really add up over time.

Note: you should not be using this grace period to spend money that you don't currently have. If you are living paycheck to paycheck then you should be spending your time trying to get out of that cycle rather than worrying about which type of card is right for you.

Build good credit history

This one is pretty obvious; if you pay off your statements in full every month then you are going to build a really good credit history. This will allow you to get much better rates on any future loan as well as potentially increase your credit limit. Even though the latter won't really help you much day-to-day, it could be very useful during an emergency when you need to quickly charge a large amount.

Which is the right card for you?

What it all comes down to is how confident you are in your ability to spend only what you can afford. If you are positive that you will pay off your statement in full every single month, then you really have no reason why you shouldn't be using a credit card. However, if you don't believe that you or your offspring will be able to remain diligent month after month then you probably should stick with a debit card. Choose the option that makes the most sense for you right now and remember that you can always change should your financial situation be different in the future.

• View Comments
• Share
• Subscribe
• Similar Posts