Credit Card vs Debit Card: 5 Reasons Why a Credit Card is Better

I’m still trying to figure out why people think I’m foolish for using a credit card instead of a debit card.  I’m a Dave Ramsey listener and fan so I’ve heard him rant and rave over the credit card — burn it, torch it, drown it, just be sure to kill it (if you’re not familiar with Dave Ramsey here is an introduction).  Seriously though, don’t you think the whole no credit card intolerance has gone a little too far?  When you take off your thinking cap the results can be dangerous.


Photo by MVI via Flickr

I imagine the following discussion.

Setting: A nosy neighbor comes into my home and sees my circular saw and says:

Nosy Neighbor: “Hey Craig, you need to stop using that saw because if you ever took the blade cover off it would slice off your finger.”

Me: “But I never take the blade cover off.”

Nosy Neighbor: “I’m just saying if you did take it off, it would be dangerous.”

Me: “I don’t take it off.”

Many of the conversations I have had about credit cards and debit cards have sounded much like the conversation above — except we talked about the two forms of plastic.  The concerned citizen says my credit card is a danger to my family, my future, and my finances.  I say my track record has proven otherwise.  And around and around we go in circles.  It is almost as if people are unwilling to have a rational discussion about the advantages of credit cards.

If the discussion was about plastic versus cash, then you have some valuable arguments in favor of cash being cheaper.  However, because plastic is more convenient people start to make a big deal about how you should use a debit card and not a credit card.  If the discussion were about poor money managers who did not use credit wisely, then my view would be different. But for people who manage their purchases and pay off their bills each month, I think carrying a credit card is fine.  And to be on the safe side, our family has established some credit card guidelines that protect us from improperly using the cards.

Why Credit Plastic Demolishes the Weaker Debit Plastic

1. People do not spend differently using debit or credit forms of plastic.

Let’s say you are filling up with gas at the local gas station.  Do you think that you would spend a different amount if you used the debit card?  I seriously don’t think you would.

2. Accounting errors with a debit card can be much more costly than a credit card.

With a credit card I only have one major accounting task — to pay the bill at the end of the month (plus to review my statement).  But, with a debit card I need to be sure there is cash in the account and to be sure when checks clear they do not conflict with my debit card purchases.  If I make a mistake with my calculations I will get hit with a $29.00 bank overdraft fee.  Personally, I know I’m more likely to overdraft than I am to miss an automatic credit card payment.

3. Credit cards offer bonus cash back or points rewards.

Let’s return to the discussion about filling up with gasoline.  If I put $50 in the tank with a debit card I get zero bonuses.  With the credit card I can get a few percent cash back (or comparable points) with most cards.  Essentially, I get something for doing nothing.  Take a look at the best credit cards.

4. Credit cards are more versatile with added features.

A couple of years ago I went to rent a car with a debit card.  I learned that if I used my debit card I was required to pay the extra insurance at $12.95 per day.  I chose instead to use my credit card so I would avoid the $12.95 fee.

5. Credit cards build your credit.

I do not know my FICO score, though a banker once told me, “Man, you have a good score”.  While I try not to care about FICO I know some companies do care about the score.  Your FICO score impacts car insurance rates and home mortgages, so I’d like to have a better score.  If carrying a credit card instead of debit card helps improve my FICO score, then I will carry a credit card.

Next time you encounter a real life credit card user, don’t automatically dismiss them as having a lower IQ.  There are legitimate reasons to choose to use credit over debit.  With that said, if you are a credit card user and you habitually do not pay your full monthly balance, then there are probably about 1,000 reasons why you should cut up the credit card.  If you are a responsible credit card user, I don’t think you should be bullied into ditching the card.  I definitely don’t think there is a valid reason to switch from a credit card to a debit card.

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About the Author

By , on Nov 11, 2009
Craig Ford
Craig Ford is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.

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Leave Your Comment (35 Comments)

  1. Ronald Dodge says:

    I can’t speak for the author and its finances, but he does have some points, though some of that is changing. However, I would have added one more major point to the 5 point he made, and that is a debit card is NOT nearly as secured as a credit card against fraud, thus that is my biggest reason why I use the credit card over the debit card.

    So let’s go over his 5 points, then go over my 1 added point.

    Point 1:

    I suspect is true other than people are more or less forced to spend only when they have money in the bank (At least prior to the recent law changes, which now would be more like have enough money in the account to cover, unless they actually opted into the so called overdraft protection, which the bank use to automatically do and the consumer use to have to manually opt out of such thing, but now the law mandates the bank must have a record of the consumer actually opting into that so called overdraft protection).

    Point 2:

    This is still largely true, expect now you have to actually have money in the bank under the default rule else you can’t get it. In the past, the bank would simply allow you to make the purchase, but then charge you that overdraft fee, even if you didn’t have enough money in the account to cover it. That’s one of the major ways how banks made money off of people’s poor record keeping of their finances. At least with a credit card in that sense, it wasn’t so much a per transaction fee provided the credit limit was high enough and the person would still pay off the new balance amount by the due date every single month. Even today, still have to watch it, but now it’s mainly only with regards to outstanding payments such as those made by checks.

    Point 3:

    This was true for a long time, but it is now starting to even out with banks doing it with debit cards in attempt to draw in more customers these days. I however won’t use a debit card because of the security issues, which I will get to later on in this post.

    Point 4:

    As far as I can tell, this is still true regardless what Dave Ramsey says. He claims you can use a debit card at car rentals, which when I had attempted years ago prior to the debit card fraud issue I had to deal with, I could not do a such transaction. Other places now days will accept the debit card, but they will charge you a fee which they won’t otherwise charge if you use a credit card. Reason being, with a debit card, the seller knows there’s a pretty good bet there’s a very low balance in the bank account, and it would not be able to get much from the customer should something happen to the vehicle, vs with a credit card, the seller knows there’s a pretty good bet there’s a much higher credit margin (Credit limit less the amount of that credit limit already in use by the customer) to be able to get from the customer should something happen to the vehicle.

    Point 5:

    If used properly, a credit card can build your credit score vs a debit card will never do that. But if you don’t use the credit card properly or you don’t ever use it, you won’t build up that credit score.

    My added point, Point 6: Debit card don’t offer you the same protection against fraud as a credit card does.

    Again, Dave Ramsey claims you have just the same protection with debit cards as you do with credit cards, but my 1 experience with fraud committed against my debit card vs my 1 experience with fraud committed against my credit card says otherwise.

    Experience with fraud against the debit card:

    I still had the card itself. The person committing the fraud somehow memorized all of the information on the card and used it over the internet (I have had my suspicions on who it may have been and when that happened, but there was no way I could prove it myself, so all I could do was to report it). Even with the suspicion I had, it was a person who I didn’t personally know, but rather it seemed as though it was a cashier to me. While a very good majority of people don’t have strong memory skills like that, there are a select few people who do possess such skills. I myself also have a very good memory skill as a result of the LD forcing me to learn the art of memorization in order for me to overcome the LD issue primarily in Language. I also had to use my gifted skill of thinking logically to overcome the LD as it could have only been done by using both skills combined.

    Anyhow, after me seeing those bogus charges on my bank account online, I immediately called up the bank and told them about it. While they did cancel out the card, they refused to refund me any of that money and they refused to refund me any of the fees that took place as a result of the checks I made out hit the account after those bogus charges had hit and caused my checks to bounce, which the bank charged me some fees and my vendors had charged me NSF fees. I was basically left out to my own to call up every one of those vendors whom the fraudster had defrauded and I was at the mercy of those merchants to refund that money back to my bank account. I was also at the mercy of my own vendors to refund those NSF fees back to me explaining what happened to them. After all of that was done, I then had to deal with the bank themselves and point out the mathematics of it all that I would NOT have been charged any of those NSF fees had that situation not happened, which then the bank finally gave in and refunded all of those fees back to me. This is not something I take lightly as it took me 3 weeks to get this matter cleared up.

    Never again will I use a debit card with an account that my check payments to vendors are dependent on as this situation reveals the large security gapping hole using a debit card otherwise have left exposed with no real protection in place to compensate for this security issue.

    Experience with fraud against the credit card:

    Similar type situation as I still had the card on me as with the debit card, but only happened during the time I was on vacation. Like before, after I got back, I checked online to see how things were. It was at that time I noticed, and I also called up the bank about those charges. They at first gave me some hassle about it. However, when I mentioned about there being international charges on the card and I was still within the US and I could have gotten those services/products within the US should I have wanted to for reasonably good prices, then why would I have done it internationally? It was only at that point when the rep realized the seriousness of the issue and basically said I had to fill out an affidavit, which would be used against me if I was to commit perjury on it. I said, that would be fine as I have no problem with that as I understand what it means. The rep faxed it over to me, I filled it out, signed it, and faxed it back. While the matter wasn’t cleared up right away, at least I was able to keep going for the most part. The only thing, I had to wait for the new card to be mailed to me, but at least that only took a week and it didn’t result in me having to do all of the leg work and hassles. Not only that, but given these charges were on the credit card, it had no impact with my check payments to my vendors unlike what happened with the debit card fraud situation.

    As such, the major weaknesses that I don’t like with checking accounts, but it seems there’s not much we can do about those weaknesses:

    1: The very low protection against fraud with debit cards, which makes payments to vendors from that same checking account very vulnerable of NOT getting paid on-time should a such fraud take place

    2: There is no protection what so ever against any company making a draft check against your checking account once they have your account number and routing number as they can even get that from your check. That has actually happened against us as well as Wells Fargo was the company that committed the fraud against me laying the claim my wife had authorized it, and she didn’t. That’s the biggest reason why now she and I have separate checking accounts so as no company can as easily commit a such fraud against us by using the name of one spouse to get after the other spouse.

  2. Sophia says:

    The way I see it, you either have the cash or you don’t. I personally think that you would spend differently using a debit card because it is real money. A credit card is spending money you don’t have. You are getting the goods at the point of sale, but are not paying the company for them. A debit card, however, is spending real money you do have, right there, in your account, available immediately. You receive the goods, and the company is paid for those goods straightaway. It’s how business used to be done. Insane the way it’s done now – makes no sense to me. It’s like companies want to be insolvent ‘Sure, take all our assets, our stock. We don’t mind if you get ill or lose your job and cannot pay us next month. We like having our resources drained!’ My business has no debt, and we don’t want any. We like to stay solvent 😉

    You say yourself that you have to watch the balance more with a debit card, to avoid going overdrawn and getting charged. So what you’re saying is that debit cards are higher financial maintenance than a credit card, which only requires you to pay a bill each month. This leads to the logical conclusion that the carrier of the debit card must be better at managing their personal finances than the credit card carrier, out of necessity, despite popular belief! Sounds to me that, by your own admission, if you had a debit card, with all those potential bank charges and chequing problems, your finances would be a mess! Ironic isn’t it that society seems to value non existent money over money upfront. That someone who does not have the ready cash is valued more and given higher social status, than someone who is able to afford what they’re buying when they buy it. Crazy world we’re living in my friend, crazy world….

  3. Ronald Dodge says:

    Your points comparison

    Point 1:

    For me, I there is a difference, but it’s not in so much as do I have the funds or not, but what are the risks I’m taking on.

    Point 2:

    Personal Accounting Errors are a possibility, but that’s also why I keep a specific amount in the checking account along with the other fact, there could be a small subsequent cost of something that came up, so instead of getting hit with a transfer fee, I just keep a small amount extra in there as a safety net. Therefore, this accounting error shouldn’t be an issue.

    Point 3:

    I also use my main credit card for this same purpose along with the fact I can delay the demand of the cash flow out to a later date, which has allowed me to pay down debt that much sooner, which then in turn has allowed me to save as much as $1,500.00 per year in the form of interest charges that I would not have saved, had I not used the credit card. Therefore, my real savings by using the credit card is more like in the area of about $1,900.00 per year.

    Point 4:

    This is true in many respects.

    Point 5:

    This is true as well, but this is not a concern of mine.

    Now onto another point that was only brought up in the comments:

    Security against fraudulent actions:

    I have had it happen to me with both a credit card of mine and a debit card of mine, and trust me, the differences are as different as day and night.

    Fraud against credit card:

    You still have to report it to the rep. Rep gives you a hard time cause of so many people may call in about such claims and don’t remember they actually made such transactions. You have to find something to convince them that it wasn’t you. They will then submit to you an affidavit to you and you will be required to fill this out as this can be helped against you if you commit purgery on it. Yes, not pleasant, but this is where the bad ends as I will do the affidavit thing just as I did with the situation I had with my CC. As a matter of fact, it didn’t even interfere with my purchases other than for the fact I had a few days of delay to get a new account number and card, which meant I still had to change my automatic setups with other places. I also only had to pay into the CC company what would have been my “New Balance” amount if those fraud charges weren’t on it. After that, everything cleared up.

    How much time did this take to clear up: Initial contact, 2 or 3 hours including the Affidavit form filled out and signed. As for the charges being completely removed, within 3 weeks, but had no real impact on me with a high enough credit card limit on it, I was able to continue with my CC purchases once I got the new card.

    Now onto the issue I had with the DC with the same situation. This one I absolutely hated and it was a total nightmare. Dave Ramsey and a bunch of others claim you have the same protection as you do with the CC, far from it. You have jack squat for protection with the DC.

    I called up the bank, and they told me they couldn’t do anything about it. They weren’t even going to remove the transaction fees I incurred as a result of the fraud charges.

    I was forced to call up every single merchant being at their mercy to have them refund the money back into my bank account.

    My checks were bounced, so I also had to call up them vendors and explain the situation to wave their fees against me.

    Once all of these things were cleared up with the merchants, I then had to call up the bank and convince them that I would not have incurred the fees by having them go through the transactions by hand showing all of the money had been refunded back to me.

    You know, to deal with this mess, it took at least a good 2 weeks if not more like 3 weeks to get this whole matter cleared up.

    As far as financial security is concerned, I will never use a DC again unless I have no realistic choice cause of this very issue I had with the DC usage.

    Therefore, point 6: CC usage doesn’t allow for fraud charges to impact checking account negatively directly as it’s only on the CC, not on the checking account where checks are dependent on that money being in there. DC usage on the other hand put your checking account at potential risk of your payments to vendors via the checking account being bounced.

    BTW, just for the record, as for my spending on the CC, I use the CC for those items that was already planned for anyhow. I also have used it for financial emergency spending, but only if the emergency fund can cover it, which I been pretty good in that area too.

    While the cash back ploy may have caused me to do a little extra spending in rare cases, but it hasn’t been to the point that it even comes close to what I get back from the credit card company.

    As far as people saying they are sticking it to the CC vendor, no they aren’t. These vendors are still getting their money from the merchants via transaction fees. Have I paid interest or any other finance charge to the CCs? No, I have not as I pay off in full every single month.

    What is the key to doing all of these things?

    First, you must create a realistic budget taking into account your set of circumstances and your household’s set of human behaviors.

    Second, you must convert this budget to the cash flow management on a daily basis with no single day over the next rolling one year going below that specified amount (obviously not lower than 0 else you have a negative balance and that’s not good).

    Third, you must be self disciplined to stick to this budget. If you need to make adjustments to it, then you go back to step 1 and work you way back down here.

    Fourth, you must pay the full balance off in full every single month by the due date

    Fifth, keep tabs with your usage and record such transactions into your spreadsheet, so as you can keep track of where you stand financially and with your cash flow management worksheet.

    Sixth, by checking your account online, you also are to be sure there aren’t any fraudulent charges taking place and if there are, you are to report it and get things dealt with right then and there.

    Seventh, SCHEDULE your payment in advance so as the CC Vendor get the payment by the due date. I highly recommend doing this online (rather if it be with the vendor if they don’t charge a transaction charge for this as most don’t, but a few like Huntington Bank do, it be via your own bank with their online banking, though this means you will be out of the money up to a few days earlier than if it was with the CC vendor, but so be it, the idea is to avoid the fees while taking the most advantage of it without having to think about this financial stuff on a daily basis). By doing this online instead of via the snail mail, this prevents the CC vendor from playing the late game as I hate that game. The snail mail route gives them the chance to claim you were late and you end up paying those extra charges.

    Eighth, Schedule your transfer to go from where you keep most of you cash at (I.e. where do you have your pay check or retirement distribution go to by default if done via direct deposit) to be in there by the date the money has to be in the checking account to pay for the CC.

    One thing I didn’t mention in this 8 step process as should already have been accounted for is to make sure this is reported in your cash flow management worksheet. The reason for that, you shouldn’t have made such purchases if it wasn’t already accounted for in your cash flow management worksheet PRIOR to the purchases.

  4. zoraker says:

    As to the morality claim, maybe you would feel better contemplating that owning, using, and paying off a credit card every month actually costs the credit card companies a lot of money because they aren’t getting the interest payments or other fees or charges, and have to make due only on the small fees they can charge the businesses to use the cards.

    To some people it would feel like, “sticking it to the man”.

    With Discover in particular it is very easy to realize $100 to $150 a year just by paying regular recurring payments with the card. You can also donate that money straight to charity from the website if you don’t want to dirty yourself with it.

  5. priya says:

    if the customer already has a credit card y does he need a debit card?

  6. Craig Ford says:

    @financialsamurai – Great question. Now if I could only figure out if I’m walking into a trap … :).
    My first reaction – not if it is preditorial.
    My second reaction – how does one know when something crosses the ‘preditorial’ line?
    My third reaction – a lot of advertisers focus on teens and college students. Do college students just have more money than sense?
    My fourth reaction – I really don’t know exactly what cc companies are doing on campuses so I’d better plead the fifth.

    BTW, I am not trying to be as unhelpful as possible, but this is a complex issue.

  7. Tina Fortune says:

    I gave up the debit card a few years ago when I was dinged a $35 fee for the miscalculation of a penny! Yes, I accept that it was my fault. I could give a number of excuses as a single/divorced mom of 3 with way too much on her plate. Yet, it was indeed my error. I went to the cash envelope system and (gulp) yes credit cards. I now have paid them off and use the credit cards for insurance and to increase my scores since I BK’d after my divorce 5 years ago. I do not believe that the spending is the same for debit cards as it is for credit cards though. Spending a debit card is just like spending cash whereas we all know there is some leeway with the cc.

  8. Craig – What are your thoughts about some publishers who advertise cards to college students and such? Do you think that’s right?

  9. Craig Ford says:

    @Kristen – I have heard differing facts about the protection differences between credit and debit cards. My debit card paperwork says it offers zero liability protection and fraud monitoring (just like the credit card). As far as I understand both offer the same protection, but a debit card might take more time to get fradulent funds returned to your account. Anyone know the scoop? Either way it would be a credit card advantage.

    @Terry – You are exactly right that you can rent a car with a debit card (thought you need to ask in advance as not all companies will allow it). As I shared in my post, some do not dislose that they have additional require insurance fees for debt card users.

    @Matt – I agree morality is a paramount issue. Thanks for clearly sharing your position.

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