The on-going question in money management being which
one should I use or should I use both? While managing your money with regards
to the use of debit and credit cards has seen a switch in the most recent years
from more people using debit cards rather than credit cards than ever before. The
primary reason being with a debit card you are spending money you have in your
bank account. It is the same as writing a check without the paper. The cost of
using a debit card resides more with the merchant than the customer because in
most cases the debit card is free with you checking account. However, it is not
always free literary because the bank has fees and service charges linked to
your account that can add up if you have over-drafts or in some cases don’t
maintain a minimum balance in your account. The increase use of debit cards has
resulted in some changes that have a direct impact on you as the consumer as
well. Have you attempted to rent a car with a debit card lately and they
requested a $400.00 deposit to assure the debit card was covered for the use of
the rental. This is but one example of merchants attempting to protect themselves
from overdraft on checking accounts that can happen just as it did when most
consumers were writing checks. The use of checks has seen a similar decrease as
the use of credit cards for purchase given the convenience of debit cards to
make purchases. So with the ever increasing use of debit cards as an
alternative to credit cards are there still times when it makes sense to use
credit cards. The answer to this question is yes…but as with any money
management area of concern it requires fore thought and selective use to
maintain both a health budget and build a credit rating to help in larger
purchases in the future. A benefit of credit cards is better protection than
with debit cards. If a credit card gets stolen, once you report the loss, you
may only be liable to pay up to $50 if any money from the account has been used
without authorization. In the case of a debit card, if you report it more than
2 working days after it is stolen, you could be liable to pay up to $500 and if
you fail to report it after 60 days, then your liability could be unlimited,
depending on the card and state where you acquired the card. The use of credit
card while still paying a role in our money management needs to be used in
those cases where you can minimize the interest and fees associated with
borrowing money as is the principle of credit card use. So when you use a credit
card, you can spend more than what you have in the bank and postpone paying for
it to a later time. The goal should be to repay the money you owe within the
billing period, which is usually 15 to 45 days, so you don’t have to pay
interest on it. Where most people get into trouble is not paying within the
billing period or just paying the minimum payment allowing the debt to continue
to grow due to interest rates applied to the outstanding balance. In today’s
credit card market those interest rates can be as high as 11%-20% per year. So
while the use of debit cards has increased a number of check and balances are
being put in place both by the banks and the merchants to protect their
interest as it applies to allowing the consumer to use them. The use of debit
cards allows the consumer to better manage their existing funds, not have to
carry lots of cash and mentally focus on spending within their budget of
available funds. I would suggest this is a good thing in the long term for the individual
and economy with more consumers getting control of their spending, debt and
still being able to build their credit scores by managing the use of credit
cards in line with good money management principles.
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