or credit card or debit card? The debate continues...
The Credit Card Necessity
Before you decide to get rid of all your credit
cards, consider they are almost a necessity in this day and age.
Besides helping with your credit score (FICO), which is used by
insurance, employers, car loans, mortgages, and major purchases,
you can pay off the balance each month without penalty. Also, they
are handy in case of a dire emergency.
About 70% of credit card users carry balances; a lot
paying very high interest rates. But even if you pay off the
balance every month, what happens if you
regularly charge $3000 every month (to get rewards points), then
lose your job on very short notice? A good reason to have an
Places a credit card is needed or very convenient
- Online purchases. Not every place takes PayPal.
- Airplane tickets
- Car rentals
- Business purchases
Paying cash can simplify life. We use a debit card every so
often at the grocery store to get cash. As with most things, there
are pros and cons to cash over credit.
Advantages of cash over credit card
- Increased spending awareness
- Tangible budgeting
- Simplified financial accounts
- Avoid unexpected fees and changes of services
- Lower risk of identity theft
- Harder to slip back into debt cycle
- Tendency to spend more because of the rewards program
- You are helping a store reduce expenses because they pay 2
to 3% (or more) to the credit card company for the privilege
of using their services
- Some services, such as many gas stations, give a cash
Advantages of credit card over cash
- Easier to track spending
- Less risk for physical loss
- Helps build credit history
- Reward programs (someone pays for this. Nothing is free)
- Select employers & insurance providers use credit scores
- Able to contest charges
You can use a debit card instead of a credit card in most
places. Still, many online vendors do not take debit cards. Also,
debit cards have problems of their own.
Credit vs. debit card
- credit: limited liability for theft. debit: none
- credit: monthly balance. debit: none
- credit: builds credit history. debit: does not
- debit: only can withdraw what you have in the bank. Some
banks do NOT limit this and will charge you with overdrawn
fees. credit: up to your credit card limit.
There is another way of online purchases: PayPal or Google
Checkout. The best thing about using them is the limited exposure
of your personal and credit card/bank information.
Advantages of PayPal over a credit card (online)
- Big advantage: using PayPal limits your credit card
exposure to PayPal. No one else sees your credit card
information when using PayPal to make a purchase. Identity
theft recovery is no fun.
- You can use eCheck to withdraw money from your bank
account and directly pay a vendor. The vendor never gets any
One of the big reasons for dumping credit cards is the way the
banks have been treating their credit card customers (higher
rates, cutting off credit without notice, onerous fees, ...).
What to do
- Consider getting a credit card through a credit union
rather than a bank.
- Cancel all credit cards that you do not use.
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