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7 ways in which credit cards beat debit cards

by IndexCreditCards IndexCreditCards

Regular visitors to this space will know that this blogger is no uncritical fan of credit card companies. Too many of them are quick to gouge customers, and exploit "gotcha" clauses that they sneak into card agreements. Indeed, a whole lot of the mess they're currently in is down to their own greed and short-termism.

However, there seems to be a real risk of consumers, who are turning in droves to different payment methods, throwing out the credit card baby with the bathwater. The last couple of items in this website's credit card news section have shown just how much trouble card issuers are in, and there could be a real risk of companies being forced to change fundamentally how they operate.

Credit cards are better than debit cards

Of course, you can understand why consumers are choosing not to use their credit cards, both for purchases in general and for holiday shopping in particular. But are they allowing their hearts to rule their heads? Yesterday, both Reuters and The Atlanta Journal-Constitution published intelligent pieces that suggested that they may be.

They pointed out some of the many advantages that credit cards have over debit cards and cash, including these seven:

  1. Zero liability for fraud losses - yes, some banks say they offer the same protection for debit cards, but these are not backed by the force of law, and Reuters quotes a Federal Trade Commission spokesperson who says such promises are not always honored in spirit. In any event, debit card fraud could see your checking account emptied and not replenished for months while your bank investigates your claim
  2. Extended warranties - many credit cards offer these on goods, and they can prove highly valuable. Many fewer debit cards do
  3. Purchase protection - using a credit card rather than a debit card or cash can often make it easier to return faulty, shoddy or malfunctioning goods. And, if you're in dispute with a merchant, credit card companies don't generally expect you to pay until the matter's resolved
  4. Credit card rewards - these are already often more generous than those for debit cards, and the gap's likely to get bigger if the Federal Reserve's new rules (which are being written at the moment) cap the cut of each transaction that banks receive from merchants every time a debit card is swiped. Those rules won't - at least for now - apply to credit cards
  5. Travel insurance - many credit cards offer refunds (subject to caps and conditions) if you're forced to cancel flights
  6. Interest-free credit - when you pay with a debit card, your checking account balance is debited immediately. But when you buy something with your credit card, you should have an interest-free period between the time you make the purchase, and the day you settle the statement on which the transaction appears
  7. Credit score boost - responsible credit card use can help you build your credit score, which, in turn, can help you secure lower rates on mortgages, auto loans and other credit agreements

If you're already struggling to cope with debt, then you're probably wise to avoid credit card use this holiday. But if you're the sort of person who is self-disciplined and good with money, then it's probably a good idea for you to use your credit card as much as you believe is responsible.

Published 12/16/10 (Modified 07/08/14)


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