Enough with the Credit and Debit Card Confusion

September 10, 2009 by  
Filed under Debt and Credit

Frank Curmudgeon – clearly knowledgeable in the world of finance – is wondering out loud why folks use debit cards instead of credit cards.  He appears proud of a history of never having used his own debit card to purchase anything.  

This is a very intelligent man who is 100% ingrained in our credit culture. He cannot fathom those who are trying to escape it. It is not logical to Frank.

Frank, using debit cards in place of credit cards is not all about logic, although some of it can be.

This is the comment I left on Frank’s post:

It’s not as mystifying as you profess. Some folks dislike credit card issuers and/or their fees and policies. Other folks are coming out of a bad relationship with credit cards and are exploring a more rational lifestyle. And I will give you my personal reason: Free rewards checking account that earns rewards plus pays 4.5% interest on all balances under $25k but requires 12 debt card transactions per month. Try getting that benefit with your credit card. If you can’t get any of that then you are too ingrained in our debt culture to understand.

Many people now perceive using debit cards to spend their own money as a blow against the credit card industry and our debt culture. It is a form of rebellion against debt-driven spending at all levels that brought our economy to its knees. I commend them for this “illogic.”

Why is that confusing?

Frank believes that overdrawing a bank account with a debit card is the spending equivalent of running up a credit card balance.


How many folks go into credit counseling, foreclosure, or bankruptcy solely because they paid too many overdraft fees using a debit card?

How many banks let their debit card customers generate thousands in negative bank balances?

Now compare those numbers to the millions of credit card abusers in our society.

Thank you. I will now rest my case on that point.

As for the logic, I argued that in my comment. There are some very good deals to be had in high-interest free checking if you are willing to leave the credit cards at home and use debit cards. Don’t believe me? You can find them at this CheckingFinder site.

Don’t get me wrong. I enjoy Frank Curmudgeon’s writing and agree with a lot of it. But sometimes you need to think outside the logic box. On this issue, he didn’t.

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9 Responses to “Enough with the Credit and Debit Card Confusion”
  1. Marc says:

    I agree with Frank. I have a discover card that has no annual fee and 1% cash back – or 5% cash back with certain promotions. I try to use this whenever I can (but many retailer’s do not accept discover – the only limitation). I always payoff my balance and I watch what I spend – so the cash back is money in my pocket (I apply it to my balance).

    I could see (maybe) using a debit card if you are trying to establish new spending habits, but otherwise go with a cash back credit card.

  2. Marc: I don’t understand how 1% cash back on Discover Card purchases is better than 4.5% interest earned on bank balances, which you can get from certain bank accounts just by using a debit card 12 times/month. I’d rather earn more from my savings than less from my spending.

  3. Marc says:

    The 4.5% is paid on your bank account balance. When you use a debit card the money immediately leaves your account – no more interest is paid. I hold on to my money longer in the bank (more interest) and I get an additional 1% back. I did not think of the bank interest, but I think it makes a stronger argument for using a credit card.

  4. Marc (and Frank, and the rest of the credit culture) have missed the point. Credit card rewards, reward what?

    That’s right, spending.

    Interest paid on a bank account, rewards what?

    You got it, saving.

    So is it any wonder that we have this crazy overspending and debt problem in this country? Now once you’ve wrapped your head around that, is it any wonder that so many Americans are turning away from credit? Is it any wonder that folks are tired of the credit industry’s games and false promises?

    I too am baffled at how difficult this is to comprehend. It’s got very little to do with math, and everything to do with behavior.

  5. MasterPo says:

    TML – What bank gives you 4.5% on checking for balances below $25k???

  6. CLB says:

    Some random thoughts: I actually prefer to split the difference. My reward checking account requires 10 debit transactions, which I meet by my smaller charges. Remaining charges are on a credit card paid off at the end of the month, allowing me to maximize my reward checking interest.

    Depending on overdraft fees, a $30 fee for a $3 overdraft is ridiculous when viewed as an interest rate for the loan the bank gives you. As the banks process transactions large to small, several $1 transactions in a day could amass many fees before the damage is realized – devastating to some one living that close to a zero balance to begin with.

    I don’t understand how a debit could establish different habits from a CC. Studies show that people are less likely to part with cash then cash equivalents (debit or credit cards).

    I don’t think rewards should be viewed as an incentive to spend. The charges on my CC are for gas, groceries and utilities for which, years ago, I would have written a check or paid cash. It’s not the debit versus credit that is the issue, but rather the attitude that needs to be adopted – money spent in any form is money that you no longer have.

  7. Roger says:

    I’ll be honest with you, I’ve never really considered debit cards are a reasonable alternative to credit cards. I’ve never run into serious trouble with credit and tended to take the ‘more logical’ view, that using credit cards that offered rewards would ‘pay’ me for the money I would spend anyway. But, I have noticed there have been times when my credit cards bills would get a bit too large, without me even being aware of it. I’ve been reluctant to switch to debit cards (or cash, for that matter), for fear of losing the rewards my cards offer. However, if it’s possible to get such impressive rewards using a debit card, I might just have to go that route and allow my credit cards to gather dust.

  8. @CLB

    You’re right. Switching from credit to debit doesn’t automatically foster better spending habits. There appears to be some physiological difference, but it’s not the answer. A budget, and cash envelopes is.

    For us, a debit card is simply a way for a family on cash to make electronic purchases. No debt, no grace period, no bill a month later. We use is for gas (sometimes), online purchases, hotels, and not a lot else.

    Also, credit card rewards are an incentive to spend. That’s why they exist. That’s what they do. In theory, in a perfect society, no one would fall for that. People would spend only what they should, no matter what form of payment. It’s a nice theory, but the people who actually pull that off are a very low percentage.

    It is all about attitude, and maybe more so – behavior. We gave up the rewards racket years ago, along with the credit card. We’ve never missed them. There is such a peace and simplicity about our finances now that I can’t imagine fussing with that stuff.

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