After the responses we got to last month's Marriage & Money post on why we don't really care about our credit scores and the discussions that were had in the comments of the post, I asked Joe to clarify a few things that you guys mentioned. One thing in particular that was mentioned a lot was the fact that if your debit card gets stolen, your money is gone and that a credit card is more secure. Cash back and airline rewards and the responsibility of the individual who owns the credit card were a few other topics that people discussed. I hope this post answers some of those questions and how we view them.
Many have brought up the question of Debit Cards vs. Credit Cards. There are only a few difference between the two.
For one, when using a credit card, you are spending someone else's money. Credit card companies have used this to market. They have created a buy now, pay later mentality, because everyone dreams that later will only bring us good surprises. McDonald's did a study many years ago and found that people who paid with credit cards spend 47% more than those who paid with cash!
A debit card is your money. Spending within your means is always good, and if you spend everything in your checking, you still won't get a bill.
As for security, there is only one difference. With a credit card, you can dispute the fraudulent charges before your bill is due and never have to pay. With a fraudulent charge on a debit, the money is withdrawn from your checking account and you will have to go without for a day or two while the bank gets your money from the "credit card" company. Debit cards are powered by all the big name credit card companies, they also carry the exact same security guarantees as the credit cards.
I would never tie a debit card to a savings account. I always keep a budgeted amount of money in checking, so if my information was stolen, the person wouldn't get far with spending my money, and I wouldn't have to worry about buying things I need.
I enjoy a simple life, I prefer not to get extra bills. The rewards are just not worth it for me. Many credit cards have low caps. They offer 1-5% cash back, but then you read the fine print and find that you can only get $300 cash back a year... and to get that, you would have to spend $30,000!! As for the airline miles, 78% of them are NEVER redeemed!
If you play around with debt enough, it will bite. Keep life simple, rewards were never the tipping point for someone to become a multimillionaire. Someone stealing your debit card and buying an iPad also wouldn't prevent you from becoming a millionaire. Play it safe and spend less than what YOU have.
(Sidenote: One time I used a store credit card and didn't take the time to pay it off right away because I knew I had the money in my account to pay it off later. Something important came up and when my bill was due, I no longer had the money I'd budgeted to pay off that bill so I had to pay it in two monthly payments. It was embarrassing and Joe and I laughed about it. So I know from personal experience that even with the best intentions, sometimes it will come back and bit you in the butt.)
We understand that some people will always choose to have a credit card, and that's ok! A lot of those individuals are really responsible and only spend what they have. We never have and never will see the need to use a credit card. We go on vacation, make large purchases, pay for school, etc. and never have a problem paying cash or using our debit card. All of the concerns that were brought up in the comments on last month's post are things that we've thought about and discussed in the past and we still don't feel that credit cards are as necessary as people make them out to be, so we will continue to stand by our opinion.