Credit cards have become a very large part of many consumers' every day lives. We forget that just a few decades ago, cash was king and credit cards were a novelty. Today's purchasers rely almost entirely on plastic for the security, the rewards, and most importantly, for the short term loan. It's just easier and cleaner than cash. Using only credit cards does carry some risk, the biggest of which is irresponsible spending in the face of large interest rates.
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There's a reason why consumer debt is as high as it is and easy credit, like unsecured credit cards, are partly to blame. Fortunately there's a way to get the best of both worlds—the cleanliness and ease of credit cards without the risk of debt. It's called a debit card. Here are five reasons why a debit card may be better than a credit card:
1. Debit cards offer more security
Both credit and debit have similar fraud protections, so they are equal on that score. If you've ever had both, you will probably remember that the only thing you need to use a credit card is a signature (which is already on the back). With a debit card, you usually have to enter in a PIN. A PIN is harder to guess than a signature (especially if the signature is on the back!).
2. Credit cards let you rack up debt
Sticking to a debit card means you'll always be using your own money and not the money of a credit card company. This often prevents you from making many unnecessary purchases that are otherwise seemingly justifiable on a "pay-for-it-later" credit card. Using a debit card instead of a credit card means you'll never have to pay anything back. Some debit card agreements have a credit line in place to "protect" you from overdraft fees but this is simply a way to trick you into getting a credit card so make sure that doesn't apply to your account.
3. You can barely tell credit and debit cards apart from each other
Debit cards can be used to book airplane tickets, buy appliances, pay for meals, you name it. They are simply credit cards for your own money. Credit cards, with the exception of being used as part of a credit check or proof of financial history, have nothing to offer your day-to-day expenditure activities besides letting you rack up ho-hum rewards and other gimmicks. There are cases where debit cards can be a little more hassle than credit cards. When you rent a car, they will typically put a larger hold on the card to cover any extra fees. This is because there is no credit on a debit card, you only have as much as is in your account. This hold protects the vendor.
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4. Debit cards offer more savings options
While credit card usage lets you build points towards some specific reward that always seems outside of your reach, using a debit card is a great way to save actual money. Many banks and other financial institutions have a "round-up" system you can allow to affect your account. Basically every time you spend, the remaining cents in the final cost—say the 45 cents in a 1.55 purchase—will be allocated for your savings. You'll see a deduction for a flat $2.00 of which 0.45 went to your savings account. Factor that with multiple purchases and it really adds up.
5. Debit cards protect your financial reputation
No matter what you do with your debit card you never have to worry about long term consequences. Credit cards are a whole different story. Reckless spending even in the low four digit figures can mean you wind up paying back a five figure sum. You won't ever dig yourself into a debit hole. These are just five reasons why debit cards trump credit cards, there are plenty more, but these show you just how different these two different types of cards are. If you are concerned you aren't responsible enough for credit, just stick with a debit card and get most of the same benefits—minus much of the risk!