Credit cards vs. Debit Cards

[LivingAlmostLarge]

DC are way more riskier. A lot of people just swipe their cards and don't track their spending and then they overdraft. It's way MORE likely when it's a couple and both of them are spending on the same account. Overdraft galore. Super easy to do.

Now risk to a CC? Well I like most here pay once a month and don't charge what I can't afford and wouldn't pay otherwise.

But for the EXTREMELY cautious CC user who wants rewards...it's my MOM!!! She learned how to use CC about 10 years ago, and rewards cards like 5 years ago. I turned her onto it. NOW my mom is like "I will charge it so I can get the miles!!" So she's coming to visit and charged a $1k ticket, the moment it hit her CC she went online and paid her bill, balance $0. 1000 extra miles though. BONUS for using a credit card.

Basically my mom pays her credit card pretty much every week or MORE. She is so anal that if there is any balance she pays it. Most of the time her statements say $0. But she is RACKING up the miles. She will tell you herself she LOVES it and wouldn't trade if for anything. I helped her set up auto pay of the cable, cell phone, utilities. As soon as those charges hit she pays them off. She has it circled on her calendar.

She knows that she has a month to pay it off, but she is so "risk" adverse she treats it like a debit card. AND my mom now loves the extra protection that it's never debited from her checking and in case of fraud, which happened recently (someone opened a yahoo account and started charging her $10/month on her visa), she loves that it wasn't her money that was used.

Called the credit card company and presto they fixed it. My mom will tell anyone that CC are for the risk averse because they protect their cash, get rewards, and treat it like a checking account.

I am not this anal and i just pay my bill in full monthly. I just have auto-debit and i know approximately what it runs monthly.

[disneysteve]

I've been away from the boards lately but my, what a fine discussion this has become.

littleroc02us, needless to say I firmly disagree with you. In your multiple examples, you are creating risk where it doesn't really exist. By my definition of "financially responsible", a person would have an EF, spend within their means and pay their bills on time. Somebody who doesn't do these things isn't responsible and shouldn't be using a credit card at all. I'd agree completely on that point.

Dave Ramsey, who I am a fan of as I've said before, deals primarily with irresponsible people. Because of that, he needs to tailor his advice to the irresponsible. He doesn't talk about how responsible people behave and handle money. That doesn't apply to the vast majority of his readers and listeners.

While we don't need a kitchen table, we did just purchase a new freezer last week so let's use that example. The process went like this. Over a 2-day period, we visited 6 or 7 appliance stores to shop around and find the best price for a freezer that met our needs. Then we went back to the store with the best deal, bought the freezer and paid for it with our rewards credit card. Including tax and delivery, it came to about $480. I could have paid cash but saw no reason to forgo the rewards. The price of the freezer wasn't going to change. We were going to spend the exact same amount no matter how we paid. So passing up the rewards simply made no sense.

Fortunately, neither of us have lost our jobs since making that purchase last week but what if we had? Well, the money for that freezer is already in our possession. Unlike the irresponsible, we don't use the card to buy things that we can't afford or don't yet have the money for. So even with a job loss, we still would have had absolutely no problem paying the bill. In fact, I could have come home and gone online that very day and paid the bill if I wanted to.

What about death or disability? Maybe I got in an accident on the way home from the store. If I was injured and couldn't work, our EF is more than adequate to pay all of our regular expenses and the cost of this freezer. Plus I have disability insurance. If I died, that EF would still be there as would the $1.5 million in life insurance that my wife would receive. I don't think the $480 freezer bill would be an issue.

I can't come up with any possible scenario where we'd be unable to pay that credit card bill in full and on time.

Let me tell you a quick story that illustrates the difference between a responsible individual like myself and most of the folks who call into Dave's show. In February 2000, I was fed up with my job. My wife and I discussed it and agreed that I should quit, so I did. I had no work lined up and had no idea what the future held but I wasn't staying at that job another day.

I ended up being out of work for about 2-1/2 months. I wasn't stressed. I honestly didn't even make a whole lot of effort to find another job. I was enjoying the down time. In fact, I came downstairs one Tuesday morning soon after leaving the job and asked DW if she'd like to go to Disney World. She said, "Sure. When?" I said, "How about Saturday?" Sure enough, 4 days later we left for a 10-day trip to Disney World. A couple of weeks after we returned from that trip, we went to Las Vegas for a week for a professional conference that I had scheduled prior to leaving my job.

We continued to use our credit cards regularly throughout the period of unemployment. And we continued to pay the bills in full and on time throughout the period of unemployment. How? With our emergency fund and savings. A 2-1/2 month job loss didn't even make a dent in our ability to maintain our lifestyle and enjoy ourselves.

Certainly, I realize that many people aren't so fortunate. But for those of us who are, using a credit card simply doesn't create any risk that isn't already there.

[jpg7n16]

My example is comparing a responsible cash payer and a responsible cc payer and I'm sticking with it because it's one of many examples where the cash payer has limited risk. Thanks for avoiding my earlier question by the way, the one asking you about if debt doesn't equal risk???

Okay let me give you an example so you can see why:

Here's another example, say two people want to buy a kitchen table and one of them uses cash and the other uses a credit card. The cash payer writes a check and is done with the sale and moves on, but the cc user has to wait to pay his cc bill. Now lets say this responsible check writer goes on a trip and for some stupid reason forgets that his check hasn't cleared yet, even though he never forgets. He pays for the trip out of his account too. He gets back from the trip and now he has overdraft fees for each souvenir he bought on vacation. Now he is paying more for the items and has to spend time at his new paid for kitchen table talking to some bank rep on the phone arguing the overdraft fees. Meanwhile the CC payer, paid his account in full online over the weekend and is eating dinner on his new table and not worrying about a thing.

Therefore paying with cash is risky. RISK!!!

Isn't that what you're trying to say?


Debt doesn't equal risk. Debt is just debt. There is risk in paying with debt, there is risk in not paying with debt - therefore, debt isn't the source of the risk.

Thanks for avoiding my Dave Ramsey question by the way - if you were able to answer it, you'd see why debt doesn't equal risk.

[JoshuaHeckathorn]

My example is comparing a responsible cash payer and a responsible cc payer and I'm sticking with it because it's one of many examples where the cash payer has limited risk.

How is the person in your example a "responsible" credit card user if he/she forgets to pay the bill? A responsible card user would set up automatic payments before leaving on vacation and would probably double check online just to make sure the payment went through.

I'll agree with you though...it's risky to use a credit card if you forget to pay bills on time and live paycheck to paycheck. If that's you, stick with cash.

[littleroc02us]

What happened to the cash they had, because they didn't pay with cash? Does it just disappear in your mind?



*sigh* two more examples where you give the cash buyer a sunny outcome, and the CC user has a lapse of insanity and troubles galore.

Stop changing multiple variables. You cannot compare a responsible cash buyer to an irresponsible CC user - and determine that his troubles were because he bought with a CC. Why don't you compare a responsible cash buyer to a responsible CC user? Or an irresponsible cash buyer to an irresponsbile CC user?


Your example says nothing about the 'risk' of debt, and only says about the risk of not paying your bills on time. Which has nothing to do with debt.

If your cash buyer sitting at home eating on his table forgot to pay his light bill, wouldn't he get a late fee?? Then the late fee was because he didn't pay on time, and wasn't related to debt at all. (or lack thereof)


So quit using examples of irresponsibility as your evidence for why CC's are inherently bad. If you want to use them as examples of why irresponsibility is bad, no one will argue with you.

It's like you're saying that math classes are useless because a student who forgets to turn in his assignment will lose points. Same logic. CCs are bad because if you forget to pay your bill, you'll lose money to fees. Has nothing to do with CCs, has everything to do with 'pay your bills on time.'



But let me ask you a question about the risk of debt and losing your job - when Dave Ramsey hears that a caller is in danger of losing their job, why does he tell them to put the debt snowball on hold and build up cash?

If the real risks of losing your job are based on debt - then to reduce the callers' risk, they should pay down debt with all available cash. So why build up cash instead of paying down the debt??

My example is comparing a responsible cash payer and a responsible cc payer and I'm sticking with it because it's one of many examples where the cash payer has limited risk. Thanks for avoiding my earlier question by the way, the one asking you about if debt doesn't equal risk???

[frugalgirl]

I have been watching this thread and wanted to add a couple of thoughts:

1) I don't have to "remember" to pay my credit card bill. I have it set up to be automatically, electronically debited from my checking account each month on its due date. If I was on vacation or even in a coma, my credit card would still be paid on time. I haven't mailed a payment to my credit card company in years.

2) What about the people using debit cards and checks that don't keep track of their purchases and overdraft their accounts? This leads to overdraft fees and bounced check fees. These could be considered "risks" to using debit cards.

The bottom line to this argument has been stated repeatedly from the beginning of this thread and in many others: you must be responsible financially - even if you use a debit card. Period.

[jpg7n16]

I'm just curious b/c I'm really naive when it comes to credit cards. I pay a small fee every months that my chase rewards card call "payment protector fee." I haven't really used my cc in a awhile bc this fee really turned me off form using it. When I was really using it for daily transactions my monthly bill would be be around $1000 and the payment protector fee would be around $10. Is this usual or is this something I can dispute?

Get a different credit card. Preferrably one with rewards and no fees.

There is no sense in paying the CC company to insure against you not paying (that's all it is really, you are paying for their insurance against your account going into collections)


Do a quick google search, and you'll find plenty of no fee CCs with decent rewards programs.

Then pay off your CC every month. Or every 2 weeks.

The point isn't to build up a balance of debt (where you'd be charged interest), it's to use debt temporarily to get rewards.

[jpg7n16]

So, you don't feel that you could ever lose your job or god forbid become disabled and can't pay their bills because they have debt built up. All fees and problems will become real.

What happened to the cash they had, because they didn't pay with cash? Does it just disappear in your mind?

Here's another example, say two people want to buy a kitchen table and one of them uses cash and the other uses a credit card. The cash payer is done with the sale and moves on, but the cc user has to wait to pay his cc bill. Now lets say this responsible user of a cc goes on a trip and for some stupid reason forgets to pay the bill even though he never forgets. He gets back from the trip and now he has a late fee and they suddenly up his interest rate to like 20%. Now he is paying more for the item and has to spend time at his new unpaid for kitchen table talking to some rep on the phone arguing the late fee and rate hike. Meanwhile the cash payer is eating dinner on his new table and not worrying about a thing.

Risk!!

*sigh* two more examples where you give the cash buyer a sunny outcome, and the CC user has a lapse of insanity and troubles galore.

Stop changing multiple variables. You cannot compare a responsible cash buyer to an irresponsible CC user - and determine that his troubles were because he bought with a CC. Why don't you compare a responsible cash buyer to a responsible CC user? Or an irresponsible cash buyer to an irresponsbile CC user?


Your example says nothing about the 'risk' of debt, and only says about the risk of not paying your bills on time. Which has nothing to do with debt.

If your cash buyer sitting at home eating on his table forgot to pay his light bill, wouldn't he get a late fee?? Then the late fee was because he didn't pay on time, and wasn't related to debt at all. (or lack thereof)


So quit using examples of irresponsibility as your evidence for why CC's are inherently bad. If you want to use them as examples of why irresponsibility is bad, no one will argue with you.

It's like you're saying that math classes are useless because a student who forgets to turn in his assignment will lose points. Same logic. CCs are bad because if you forget to pay your bill, you'll lose money to fees. Has nothing to do with CCs, has everything to do with 'pay your bills on time.'



But let me ask you a question about the risk of debt and losing your job - when Dave Ramsey hears that a caller is in danger of losing their job, why does he tell them to put the debt snowball on hold and build up cash?

If the real risks of losing your job are based on debt - then to reduce the callers' risk, they should pay down debt with all available cash. So why build up cash instead of paying down the debt??

[DRILLINDK]

I'm just curious b/c I'm really naive when it comes to credit cards. I pay a small fee every months that my chase rewards card call "payment protector fee." I haven't really used my cc in a awhile bc this fee really turned me off form using it. When I was really using it for daily transactions my monthly bill would be be around $1000 and the payment protector fee would be around $10. Is this usual or is this something I can dispute?

[happygirl]

So, you don't feel that you could ever lose your job or god forbid become disabled and can't pay their bills because they have debt built up. All fees and problems will become real.

Your wording has me a bit confused, but I'll try to answer what I think you are asking. If I no longer had an income as of tomorrow, I would have adequate funds to pay my CC bill in full as well as my regular monthly bills for 8-10 months to come. If I used my DC instead of my CC, I would have still have adequate funds to pay my regular monthly bills for 8-10 months to come. Again, I think it comes down to personal responsibility. If I couldn't afford to pay my CC bill in full each month, I wouldn't purchase many of the things I do. Likewise, if I couldn't afford to use my DC without overdrawing (I think that's the right word), I wouldn't purchase many of the things I do.

[littleroc02us]

What risk?

Here's another example, say two people want to buy a kitchen table and one of them uses cash and the other uses a credit card. The cash payer is done with the sale and moves on, but the cc user has to wait to pay his cc bill. Now lets say this responsible user of a cc goes on a trip and for some stupid reason forgets to pay the bill even though he never forgets. He gets back from the trip and now he has a late fee and they suddenly up his interest rate to like 20%. Now he is paying more for the item and has to spend time at his new unpaid for kitchen table talking to some rep on the phone arguing the late fee and rate hike. Meanwhile the cash payer is eating dinner on his new table and not worrying about a thing.

Risk!!

[littleroc02us]

I'm no financial expert, but aren't these risks only risks if you are irresponsible with a CC? Are there no risks associated with irresponsible use of a DC? I guess what I'm thinking is that regardless of which card you use, it goes back to personal responsibility.

So, you don't feel that you could ever lose your job or god forbid become disabled and can't pay their bills because they have debt built up. All fees and problems will become real.

[littleroc02us]

Correction...happens all the time with "irresponsible" people.

exactly my point, so there is still risk. Thanks fro proving my point.

[littleroc02us]

So what risk again?


I think happygirl was right on - there are costs to being financially irresponsible - but those aren't tied solely to CC users. What if a cash buyer pays his mortgage late? Won't he get late payments too? What if he's late on his insurance premiums? Won't he run the risk of being in an accident without coverage?

MM, Coronet, Greenback and others are trying to make the point that you can use CC's responsibly and not be at any additional risk. And I agree with them.

Your wrong on this one! I wasn't talking about you so don't take it personally, I was talking abou the amercian public which this forum is about, there is risk in debt. It's money 101.

[littleroc02us]

So what risk again?


I think happygirl was right on - there are costs to being financially irresponsible - but those aren't tied solely to CC users. What if a cash buyer pays his mortgage late? Won't he get late payments too? What if he's late on his insurance premiums? Won't he run the risk of being in an accident without coverage?

MM, Coronet, Greenback and others are trying to make the point that you can use CC's responsibly and not be at any additional risk. And I agree with them.

A lot of ifs.......