Credit & Money Management
Credit vs Debit
By Mark Solheim, Senior Editor
Robert Long, Managing Editor
From Kiplinger's Personal Finance magazine, April 2010
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Why I Love My Credit Card
I just finished checking the balance of my credit-card reward points: 13,282, racked up over the past three months. Basically, Chase is giving me a $132 rebate in exchange for putting all my purchases (even my morning coffee -- who needs all that loose change?) on my credit card. Because I pay off the balance every month and there's no annual fee, this is a windfall.
I get another huge benefit for using my plastic responsibly: a sterling credit score, which has provided access over the years to low-rate mortgages and car loans. When cash flow is tight (I have two kids in college), I've taken advantage of zero-percent balance-transfer offers, but I pay them off before the rate spikes. I've never been a victim of fraud, but when I've had billing errors, my card issuers have dealt with the merchants. Yes, there's a temptation to spend beyond your means, but used in the right way, credit cards are a great (and rewarding) moneymanagement tool. MARK SOLHEIM
The Case for a Debit Lifestyle
Sure, you can use credit to your advantage. But the truth is, many of us simply don't: Nearly 60% of credit-card holders don't pay off their balances each month. Credit is a too-easy-to-accept invitation to break your budget on a regular basis. As a result, this significant majority of credit users regularly lose money in the form of compounding interest payments and other fees. Over time, those debts accumulate into obstacles to reaching your financial goals.
That's why my wife and I own no credit cards. We use debit cards (or cash and, on occasion, checks) to pay our way through life. We don't spend what we don't have. By using our Visa debit cards, which can act like credit cards, we've never had problems renting cars or booking hotel rooms. And by signing for purchases rather than using PINs, we get virtually the same protections as credit users. We also benefit from one less bill to pay, one less account to monitor, one less source of debt to overcome. ROBERT LONG
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Reader Comments (1)
Posted by: Jason Henrichs at 04/09/2010 11:46:22 AM
I've long been a credit card user to get the miles, even though I knew the psychology of spending on credit has been shown to increase the amount spent. Since I paid off my balance each month, I figured it wasn't that big of a deal. We started PerkStreet Financial, the first high rewards debit card, to bring the same windfall enjoyed by credit card users to those trying to live within their budget by spending on debit. I was shocked to see how much our monthly spending dropped when we switched over to a pure debit card household. My paycheck is deposited into my PerkStreet account and I automatically transfer out money to our investment account, leaving just the amount needed to pay bills plus our budgeted monthly spending. Because the balance is fixed, I now ask myself before every transaction if it's in the budget. If it's not, I ask myself if I am willing to transfer more money in to cover the expense. More often than not, this keeps me on budget without agonizing over month end statements and I'm still getting my 1% cash back.