It’s official: 2019 is nearly halfway over, which means that now is the time to pause and take stock of your total wellness. This includes your spending habits and where you stand in your progress toward your year-end goals. What methods do you actually use to make purchases? Do you favor debit cards over credit cards? Which method is “safer”?
Our Financial Planning Associate, Hallie Kraus, is tackling these questions in a new, two-part blog series. If you missed Part I of the series, click here to get up-to-speed. In Part II, Hallie explores the benefits of using a debit card to make purchases and is sharing some resources you can use to make smart spending decisions.
Now that you know the potential benefits — and risks — that come with using a credit card to make purchases, it’s time to take a look at the other side of the payment spectrum: the debit card.
When Is It Best to Use a Debit Card vs. a Credit Card?
When you want to manage your spending or avoid debt. This is, by far, the best reason to use a debit card, and it’s not insignificant. If you’re trying to reel in your expenses, or if you’re the kind of person who simply likes to have more structure to keep your expenses in line, debit cards are the way to go, simply because you’re only paying with money you already have.
Unfortunately, these days, card “skimming” has become more prevalent, in which fraudsters use small devices to steal card information in an otherwise legitimate transaction. Keep in mind that most experts discourage the use of debit cards at gas station pumps or independent ATMs, where skimmers are most likely to target.
You want to minimize fees — for you, as the consumer, and for the merchant. Using a debit card means you never risk the possibility of incurring interest, late fees or annual fees — all of which are associated with most credit cards.
Merchants, on the other hand, pay a processing fee to card issuers in order to accept both credit and debit cards. The processing fee for credit is typically a percentage of the customer’s purchase, while the processing fee for debit is lower, and often a flat fee. So, it’s actually cheaper for merchants when you, as their customer, elect to have a debit transaction — something to keep in mind if you want to do what you can to help the profit margins of your favorite businesses!
The Bottom Line
Regardless of whether you use a debit or credit card to make purchases, it’s important to keep the following tips in mind:
Monitor your transactions regularly. The sooner you report a fraudulent transaction, the better. Make it part of your routine to check your activity on a regular basis and report anything suspicious to your bank as soon as possible.
Only you know your habits and what’s best for you. Be honest with yourself about your financial strengths and weaknesses, and use that to determine which card make the most sense for your lifestyle and spending habits.
Check your credit report on at least an annual basis. You can view and download your credit report from each of the three bureaus for free once per year by visiting www.annualcreditreport.com. This is yet another effective way to monitor for fraudulent activity and familiarize yourself with what makes your credit tick.
There are plenty of resources available to help you practice smart, diligent spending. When it comes to monitoring fraud, one of the best guidelines is the Federal Trade Commission (FTC) website, which also offers plenty of advice regarding lost or stolen credit and debit cards. If you would like to learn more about the pros and cons between debit and credit cards, check out this article by AARP and this piece by The Simple Dollar, both of which provide comprehensive and unbiased overviews of both methods.
And, as always, The Humphreys Group is here to help answer all of your personal financial planning questions. If you would like to learn more about saving and spending best practices, contact our team.