Last week, I wrote about some downsides to using debit cards. This week, I see a bunch of (completely unrelated) posts from other bloggers who are jumping on the “Debit Cards suck” bandwagon. Some of their reasoning makes sense, some of it is a little inaccurate, and some is just funny. I’m not going to name names here, some of these people have earned my respect on many topics, and I don’t see that my disagreement with their analysis of debit cards is worth blasting them publicly. So, if you wrote a post about the downside of debit cards in the last week, I’m probably not talking about you specifically.
Debit cards aren’t all bad. As I said before, I live off my debit card. I prefer cash as a method of making me decide what is really important to me. I like the fact that I can’t go wild and destroy years of hard work.
Some of the arguments I’ve heard include the notion of “double charging” that some PF’ers swear happens to them, the lack of a rewards program with debit cards, and the perceived lack of security that they believe debit cards have vs. traditional credit cards.
Let’s start with the “double charging”. This is just BS. What happens is this: You go to a gas station, for example, and swipe your card to get gas. The machine doesn’t know how much gas you are going to get, the attendant doesn’t know, and in most cases, you don’t know. So the gas station submits an authorization hold on the card. For most places, it’s only a dollar, but depending on the place you go, it may be higher. I’ve heard that some places hold $100.00. The hold is good for a couple days (the time needed to process the correct transaction), and then it goes away. My advice there is to not go to the places that hold $100.00, and to make sure you have enough money in your account before you go spending. Incidentally, the same thing occurs with credit cards, but instead of a debit hold, a credit hold goes on your card.
Some people love them their rewards. They believe that it’s better to use a credit card that offers rewards points, feeling that credit card companies do this for “free”. They think they are getting something over on the credit card companies if they pay off their balance in full when the bill comes in. We all know better. Companies just don’t do things for free. These people are really gambling that everything happens just right. All it takes is one time for a payment to get lost in the mail, and their “free” points wind up costing a lot of money in interest cards.
The most laughable point I’ve heard yet is the issue of security. People cling to this hope of $50.00 liability like that’s some sort of good thing. I have credit cards that say I’m only liable for $50.00 in transactions if my card is lost or stolen. My question is, why should I have to pay $50.00? My banks have an answer: You don’t. Every institution I deal with has a zero liability. My information gets compromised in any way, and I get my money back. Usually, all I have to do is make a phone call, but in the worst case scenario, all I have to do is get a police report (not hard), and sign a form saying I’m disputing the transaction. It’s easier to do this as long as I’m dealing with my money. With a credit card, it’s not my money. It’s the credit card company’s money. So, as a gesture of “good will”, they “limit” my liability to $50.00. When I get the bill, I’m pretty pissed at having to pay $50.00 in charges that aren’t mine, so I don’t make the payment while I appeal to their management. Their management takes their time to respond, meanwhile my $50.00 is generating interest that I’ll eventually have to pay. There’s more to the story. If my debit card is lost or stolen, my banks have hard-coded limits on the amount that can be authorized. I’m limited to the amount they can take from me. I’ll get all the money back, but this way I still have money left over. With a credit card, someone can max out my card. I keep a couple of credit cards for emergency situations, but they don’t do any good if they are maxed out pending an investigation by a credit card company.
Some people also talk about the advantage of paying off their credit card balances each month, and keeping what would be available in a checking account in a high-yield savings account. In their minds, they are not only not paying interest, but they are making a higher rate of return for the 20 or so days that they aren’t using their money. Okay, I guess this works, but it is a pain in the butt. I also don’t like the gamble of that ONE screwed up payment.
Look, we all know there are more important things in life than money. When you play these games with money, you are spending a lot of time and effort on something that really doesn’t matter. Sure, if everything goes right I might make a few dollars, but is it worth it? At the end of the day, it’s your call what currency to use. Make your decision based on personal preferences. Don’t look to me or anybody else to make your decisions for you. Obviously, for me, the ranking is cash, debit, and then credit. For others, it’s cash or nothing, and for others it may be something else. It all boils down to personal responsibility, and a tolerance for risk. How sure are you that nothing will go wrong?