Credit cards vs. Debit Cards

[Frugal]

What is your opinion on using credit cards when you don't absolutely have to, in order to get a Cash Back amount each month or quarterly period? I like to avoid using credit cards at all costs, but my family member likes to use them for everything from gas to groceries to paying the utility bill, all in order to save a little money and get anywhere from 1-5% cash back each month.

Do you think credit cards are a useful to, or a hazard to budgets to AVOID?

I personally prefer using a debit card, because the funds come out right away, and I can better track my expenditures each day online. Plus, there is less temptation to spend extra, and run up a balance that is beyond my means to pay, and accrues interest each month it is not paid in full.

[disneysteve]

We use our reward credit cards for everything we possibly can - gas, groceries, dining out, clothes shopping, travel, paying household bills, anything and everything. Why pay cash and get nothing in return when we can use the credit card and get cash back and points toward our reward program?

With credit cards, we get a very nice record of our spending each month plus our Chase cards give us a year-end summary which is great for budgeting review.

If we used a debit card for all of the transactions, we'd constantly be recording them in the account register. This way, we only have to record the monthly bill payment, so one transaction vs. 20 or 30 transactions to record.

All of that said, if you are the type of person who would be tempted to overspend or you would charge more than you could afford to pay in full each month, then you shouldn't be using a credit card. Credit cards should only be used by people who have a good firm handle on their spending habits and their personal finances.

[minnie1928]

Originally Posted by disneysteve

We use our reward credit cards for everything we possibly can - gas, groceries, dining out, clothes shopping, travel, paying household bills, anything and everything. Why pay cash and get nothing in return when we can use the credit card and get cash back and points toward our reward program?

With credit cards, we get a very nice record of our spending each month plus our Chase cards give us a year-end summary which is great for budgeting review.

If we used a debit card for all of the transactions, we'd constantly be recording them in the account register. This way, we only have to record the monthly bill payment, so one transaction vs. 20 or 30 transactions to record.

All of that said, if you are the type of person who would be tempted to overspend or you would charge more than you could afford to pay in full each month, then you shouldn't be using a credit card. Credit cards should only be used by people who have a good firm handle on their spending habits and their personal finances.

I second all of this. We use our cards for everything we can, pay them off each month and earn easily over $500 cash/year doing it plus points for air travel/hotel/etc. I never pay interest and since I budget my spending each month, I never overspend.

However, I am a bit more anal about my finances than DS. I still make every entry to Quicken for every purchase, but I would do that if I was using a debit card too. So, in my world, using my credit card is the same amount of work as a credit card.

But, this doesn't work for everyone. Credit cards have never been a problem for me, so I feel very comfortable doing this. My mother on the other hand can't be trusted to have a credit card, so she uses her debit card. Each person should know what their limits are and work within them.

[minnie1928]

Originally Posted by Frugal

Do you think credit cards are a useful to, or a hazard to budgets to AVOID?

I just re-read this line and wanted to share this. Several years ago, before interest rates tanked and balance transfer check fees went through the roof, I used to borrow money on my credit card for the sole purpose of earning a spread on the interest. So, for example, I would borrow $10,000 from Chase at 0% for 6 months. I would take that $10,000 and send it to HSBC and deposit it to earn 2.5%. As the 6mth promotion was nearly finished, I would withdraw the $10,000 and pay off Chase. This scenario would earn me about $125 with very little work/time invested.

Sadly, interest rates and fees don't make this worthwhile anymore

[kork13]

Likewise with DS and minnie. I use my credit card whenever it's an option. Every month I get $20+ from cash back rewards on my credit card on all of the stuff that I need for daily life. I say "why not get the cash back?" Yes, some people just can't control their spending. But if you have the ability to know what you can/can't afford, there's no reason not to take advantage of what's available. just my opinion...

[AtoZ]

Credit cards are not the problem people believe them to be - it is the inability to manage them that causes problems. if you can manage the payment and be sure you are getting the best rewards, etc. then by all means use them. if credit cards have caused you trouble try something else.

[littleroc02us]

This issue is discussed over and over again on this forum. Basically there are 2 train of thought for the responsible user. I like to call it the risk and no risk options. The risk option is to use credit cards for everything and while most of these users will say they keep track easily of each expense when the card is used, I don't believe it because in some studies they have shown that a credit card user actually spends more then they would with cash. The risk also comes into play if you mail your payment and they don't get it and then you have to fight the late payment. Or if you lose your job then you have debt on your card that you have to figure out how to pay off.
The less risky way is to use a debit card where if your a responsible user you keep a budget and balance your checkbook, where you spend the money immediately and it is deducted from your checking account. With my debit card if I were to go over the limit, no problem because it just transfers money to cover the expense from my savings account. With a credit card if you go over your limit you get a fee.

For irresponsible users, neither idea works because you just have problems managing money.

[MonkeyMama]

Originally Posted by littleroc02us

I like to call it the risk and no risk options.
For irresponsible users, neither idea works because you just have problems managing money.

I've had a credit card for almost 20 years and have never paid a cent of interest or any type of fee. I know when my credit card payment is due - I don't need a bill in the mail to remind me.

Likewise, I don't need to use cold hard cash to control my spending.

I strongly disagree that I take on more risk using a credit card. Sure, if I ran up debt, paid late, etc. These are all things that are easy enough to avoid if you can take any personal responsibility or exert some self-control.

I suppose I Am so annoyed at the idea that people just can't take that responsibility. That it is just too impossible to pay their bills on time.

[MonkeyMama]

Originally Posted by AtoZ

Credit cards are not the problem people believe them to be - it is the inability to manage them that causes problems. if you can manage the payment and be sure you are getting the best rewards, etc. then by all means use them. if credit cards have caused you trouble try something else.

Precisely.

I personally use credit cards for rewards. When interest rates were higher I took 0% balance transfers and invested the money in CDs (earning 5%-6%).

I've never borrowed a cent on a credit card that I didn't have the cash to pay back. IT's really that simple.

If that's hard to manage, don't use a credit card. I am just tired of being told it is impossible to use credit cards responsibly. Because it isn't.

[littleroc02us]

Originally Posted by MonkeyMama

I strongly disagree that I take on more risk using a credit card. Sure, if I ran up debt, paid late, etc. These are all things that are easy enough to avoid if you can take any personal responsibility or exert some self-control.

\

So you believe that if there were two people and one used a credit card to buy something and the other paid cash and they both lost their jobs that the credit card user wouldn't be in more trouble? That ridiculous. The cash payer wouldn't have any debt on the transaction, but the cc user would still have that debt hanging over his head. Big difference!

[JoshuaHeckathorn]

Originally Posted by littleroc02us

So you believe that if there were two people and one used a credit card to buy something and the other paid cash and they both lost their jobs that the credit card user wouldn't be in more trouble? That ridiculous. The cash payer wouldn't have any debt on the transaction, but the cc user would still have that debt hanging over his head. Big difference!

The credit card user wouldn't be in any more trouble. I, like the others that support responsible credit card use here, only buy in a given month what we already have the cash to pay for when the bill is due.

The only difference would be that the cash would be in my bank account longer than the person that paid cash up front. The credit card user still wins.

[Coronet]

^ If you pay it off in full each month (i.e. already have the cash sitting in your bank account BEFORE you charge something so it immediately gets paid off) your argument doesn't work. I only charge what I have so even if I lost my job today I could still pay off my cc.

[littleroc02us]

Originally Posted by Coronet

^ If you pay it off in full each month (i.e. already have the cash sitting in your bank account BEFORE you charge something so it immediately gets paid off) your argument doesn't work. I only charge what I have so even if I lost my job today I could still pay off my cc.

Actually it does, because what if you took the money that you would have used to pay off the cc on something frivilous and then lost your job and had no other money to use to pay off the debt? The cash payer wouldn't have that problem. What you do isn't what everyone else does.

[littleroc02us]

Originally Posted by JoshuaHeckathorn

The credit card user wouldn't be in any more trouble. I, like the others that support responsible credit card use here, only buy in a given month what we already have the cash to pay for when the bill is due.

The only difference would be that the cash would be in my bank account longer than the person that paid cash up front. The credit card user still wins.

Again wrong, because the credit card user could have been someone that was expecting the money to come in on his next paycheck and then got laid off or he lives paycheck to paycheck and doesn't save money and something else comes up, so now he cannot pay his bill. Happens all the time with people.

[jpg7n16]

Originally Posted by littleroc02us

Actually it does, because what if you took the money that you would have used to pay off the cc on something frivilous and then lost your job and had no other money to use to pay off the debt? The cash payer wouldn't have that problem. What you do isn't what everyone else does.

What if the cash payer took his cash and spent it on something frivolous? Then he also wouldn't have cash for food.

You like to create scenarios that assume your solution always does everything perfect, while the scenario you're against gets these odd requirements, or scenarios that only affect the side you're against.


There is no difference between a person who has $3000 cash, buys $400 on a credit card to build up rewards, then pays $400 of his cash to the credit card - and a person who has $3000 cash and buys stuff with $400 cash. (except that the CC user gets rewards, and the cash one doesn't)

At the end of the month, each has $2600 in cash and no debt.

But if you want to say 'well the CC user might spend the cash on frivolous stuff instead' why don't you say that the Cash user might spend his cash on frivolous stuff too?? Answer: because it doesn't make your argument look as good.


If I just lost my job, I would rather have $15k in cash with $10k in debt, than have $5k in cash with no lines of credit (remember I lost my job, so no one will lend to me). Debt can be paid off over time in small amounts. Food has to be bought today.

[GREENBACK]

Originally Posted by littleroc02us

Again wrong, because the credit card user could have been someone that was expecting the money to come in on his next paycheck and then got laid off or he lives paycheck to paycheck and doesn't save money and something else comes up, so now he cannot pay his bill. Happens all the time with people.

As a responsible CC user you would certainly have a sizable EF in place to handle a situation like this. If I had zero income tomorrow I could easily pay off my CC's. People in a paycheck to paycheck position shouldn't be using a CC to begin with.

CC's are for financially responsible folks and it actually goes beyond the ability to pay it off from month to month, IMO. The financially responsible CC user who has his house in order has no risk that can't be handled in an emergency.

[littleroc02us]

What if the cash payer took his cash and spent it on something frivolous? Then he also wouldn't have cash for food.

You like to create scenarios that assume your solution always does everything perfect, while the scenario you're against gets these odd requirements, or scenarios that only affect the side you're against.


There is no difference between a person who has $3000 cash, buys $400 on a credit card to build up rewards, then pays $400 of his cash to the credit card - and a person who has $3000 cash and buys stuff with $400 cash. (except that the CC user gets rewards, and the cash one doesn't)

The difference is risk! You have to assume risk everytime when using CC's.

At the end of the month, each has $2600 in cash and no debt.

But if you want to say 'well the CC user might spend the cash on frivolous stuff instead' why don't you say that the Cash user might spend his cash on frivolous stuff too?? Answer: because it doesn't make your argument look as good.


If I just lost my job, I would rather have $15k in cash with $10k in debt, than have $5k in cash with no lines of credit (remember I lost my job, so no one will lend to me). Debt can be paid off over time in small amounts. Food has to be bought today.



The point is that if you simply state that using cc's that there is debt and if you use cash there isn't. What happens after that is all variables. You can't argue that point.

[littleroc02us]

Originally Posted by GREENBACK

As a responsible CC user you would certainly have a sizable EF in place to handle a situation like this. If I had zero income tomorrow I could easily pay off my CC's. People in a paycheck to paycheck position shouldn't be using a CC to begin with.

CC's are for financially responsible folks and it actually goes beyond the ability to pay it off from month to month, IMO. The financially responsible CC user who has his house in order has no risk that can't be handled in an emergency.

I understand that responsible people rely on credit cards for everything, but again I don't want to assume the risk. I can post visa's agreement for credit card use for everyone to see, it has a whole lot of what if's like late fees, over the limit fees, etc.. IMO those are some of the risks.

[jpg7n16]

Originally Posted by littleroc02us

The difference is risk! You have to assume risk everytime when using CC's.

What risk?

The point is that if you simply state that using cc's that there is debt and if you use cash there isn't. What happens after that is all variables. You can't argue that point.

Here's my problem with your argument.

You say, a cash purchaser would pay cash - have no risk, be totally okay if he lost his job, and since he buys with cash, he will never make impulse purchases and therefore be in good shape.

But a CC user - is super risky, is in danger of losing his job, has more debt, and is liable to blow through all his cash immediately before losing his job.

So therefore it's obv better to buy with cash than a CC, because the CC is soo risky! (though you never say what risk)


You never evaluate the effects of the same events happening to both, it's always sunny for your preferred method and tragic for the option you're against.


So yes, there are variables, but a fair example only changes one variable at a time. Like:

Say there was a $5000 purchse and two buyers had $10,000 in cash. One bought with cash, the other on his credit card (to earn rewards) planning to pay it off at the end of the month. After the purchase the cash buyer would have $5000 cash and no debt. The CC user would still have $10,000 cash and have a new debt of $5000 (min payment of $50/month). {everything is identical except the one variable: method of purchase}

Who is in a better position to weather suddenly losing a job?

IMO it's the one with the most cash on hand - which would be the CC user. The debt can be repaid over time, but as they have no income, they wouldn't qualify for any lines of credit if they ran out of cash.

[GREENBACK]

Originally Posted by littleroc02us

I can post visa's agreement for credit card use for everyone to see, it has a whole lot of what if's like late fees, over the limit fees, etc.. IMO those are some of the risks.

Or you could post a typical installment loan agreement or any other contract with a bank. A CC is like anything else a bank issues. We all know that banks look to make a buck any way they can and will if you let them. You assume no risk if you insulate yourself from the hazards that are part of the contract.

If I had a car loan and got several months behind on payments I'd fully expect serious repercussions from the lender like losing my ride. Same with CC's minus the collateral. No collateral means they need other ways to ensure collection or compensation for their "loan".

We assume risk with any bank loan and a CC is no different but is much easier to deal with if handled intelligently. I'm not a big fan of banks but I get why they manage CC accounts the way they do.