Credit cards may be convenient and provide lucrative rewards, but with U.S. credit debt at $864 billion, they certainly don’t come without risk.
On the other end of the payment spectrum, using cash only might be safest option when it comes to staying out of debt, but ATM fees, the risk of loss or theft, and the inconvenience of always having enough money in your wallet means that cash might not be a perfect choice, either.
The solution: Take the middle ground with debit cards, and enjoy benefits over both credit and cash.
Here are advantages to using debit cards you might not have considered before.
No Risk of Debt
With credit cards, your spending is typically capped by a credit limit, which can be thousands of dollars. When using credit, you’re essentially taking out a loan from your card issuer and agreeing to pay it back at a later date. There’s no harm if you’re careful, but some credit card users end up in debt because they want to buy something now that they can’t afford to pay cash for.
Debit cards solve this problem since it’s basically impossible to go into debt from using debit cards alone. The premise is simple: You can only spend money you have in your bank account, nothing more. Just think about how different that credit debt statistic for the United States would be if credit cards were all replaced with debit cards!
Easiest for Tracking the Flow of Money
When using cash, all accounting must be done manually when you’re tracking your spending. It’s on you to either hold onto receipts or memorize what you spent and log it into a spreadsheet later.
Credit cards simplify the process and allow the use of automation with services like Mint.com. However, this still doesn’t subtract the money for your purchase from your bank account until you actually pay your credit card bill. This means you’ll still need to keep an eye on both your credit and bank accounts to make sure you aren’t overspending.
Debit cards are the simplest solution of all. You can have all the benefits of using Mint while also not worrying about paying your credit card bill later. Cash is just taken from your bank account in near real-time when purchases occur.
Easy to Acquire and Maintain
Credit cards require an application with a decent credit history. There’s always the chance of getting rejected, and the chances of that increase if you haven’t established good credit.
Not so for debit cards – anyone that can open a bank account can get one, and many checking accounts now include debit cards automatically. Even though some banks are adding monthly fees to their accounts, there are still free options out there.
Once you have a debit card, you never have to deal with a bill. You’re simply issued a monthly statement to look over and then file away, no mailing or schedule payments necessary. This makes life easier compared to credit cards, which issue a bill that you have to pay each month. If you don’t pay your credit card bill on time, you’ll be hit with a late fee, a penalty interest rate, and a ding on your credit report, too.
Fewer Fees Than Credit Cards
While you do have to worry about bank account balance with a debit card, there are some credit card fees that don’t exist for debit. With debit, you won’t have to worry about:
- Late payment fees. Since there aren’t any bills, there’s never any need to worry about late payments costing you money and damaging your credit.
- Interest charges. Financing purchases on a debit card isn’t an option, so interest charges never come into play.
- Over-limit fee. You’re limited in spending by your checking account balance, not a credit limit, so this fee doesn’t apply.
Protection From Fraud and Theft
For those who prefer spending with cash, debit cards offer increased protection in the case that your wallet is lost or stolen. Cash might not be returned even if your wallet is recovered, but debit cards are backed up by fraud protection if anyone tries to use your card.
Also, it’s a myth that credit cards offer more protection than debit cards. In fact, both are nearly equal, and any debit card carrying the VISA or MasterCard logo has the same guarantees that their credit counterparts do.
No Need For Checks
Checks are becoming less and less useful. They’re often the slowest way to conduct a transaction, plus you’ll have to wait for the check to be deposited before the correct balance is reflected in your bank account. Unless you balance your checkbook regularly (another time sink), this is an inconvenience.
Debit cards essentially do the same thing as checks: take money directly from your checking account to pay someone else. Instead of having to scribble out the information on a small rectangle sheet of paper, it’s just a quick swipe of a card. No need to keep track of checks you have outstanding as your available balance will update with each purchase.
Rewards Available, Just Like Credit Cards
Rewards aren’t just for credit card users as there are debit cards out there that offer cash back or other perks.
PerkStreet Financial offers a bank account that features a rewards debit card. Users can get 1% back on all purchases and up to 5% on rotating categories and merchants.
Ally Bank offers the Ally Perks program that rewards debit card users for making qualifying purchases with their debit card.
Look at these and other offers before turning to credit cards as your only source of rewards bonuses.