Some people have the vigilance and discipline -- and, sure, the savvy and an admirable passion for managing their money -- to own and even prosper from credit cards. Other folks, namely me, don't. But that doesn't mean we're dumb about money. We're smart enough to learn our lessons, to recognize our weaknesses and to understand their consequences for our financial goals. We fear debt, exult in ownership and find comfort in the controlled boundaries of our checking and savings accounts.
My wife and I own no credit cards -- no Visa, Mastercard or American Express cards, and no lines of credit with any retailers. Debit cards (plus cash and, on occasion, checks) are how we pay our way through life. We don't spend what we don't have.
As our own Knight Kiplinger reminded us in a classic October 2006 column, "all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday." Three years and one big recession later, our boss had to spell out 13 lessons from the sudden economic downturn in our December 2009 issue. Among them: Debt can be deadly, easy credit helps no one, and living beyond our means is over.
As you'll see in Joan Goldwasser's companion piece, The Pluses and Minuses of Credit and Debit Cards, there are smart reasons for some people to own and regularly use credit. For instance, I acknowledge that credit may be a necessary evil for folks living paycheck to paycheck, or without a paycheck -- a way, perhaps, to pay for necessities, or a fallback to use in emergencies. On the other end of the spectrum, more-disciplined people such as Joan can use credit to spend most safely, pay off balances before interest accrues and accumulate valuable rewards along the way.
But let's set aside the principles of our argument for a moment and celebrate four practical benefits of using debit cards as your primary -- if not sole -- purchasing tool:
1. No annual fees and no interest. For certain, debit-card fees can be a sneaky drain on your accounts. Watch out for excessive or frequent fees for using other banks' ATMs, or for making too many debit-card purchases in a month. However, unlike credit cards, debit cards don’t come with an annual fee. And you don't borrow money when you use a debit card, so you won't incur any interest on your purchases.
2. One less. One less bill to pay each month. One less stamp to use (or one less online bill-pay account to establish). One less card to carry around in your wallet. Indeed, in Kiplinger's June 2009 cover story, Simplify Your Life, we advised that "consolidating your credit-card balances is another way to reduce hassles." I say consolidate to zero cards, and you'll not just reduce but eliminate those hassles.
3. Less risk of identity theft. With no credit cards, you have fewer accounts to monitor for potential violations -- and more peace of mind.
4. Versatility. Many debit cards double as credit cards and are processed as such if you use the card online or if you sign the card in person instead of using your PIN. And when you use the debit card as a credit card, many banks offer valuable rewards. My wife and I trade in our debit cards' accrued rewards points during the holidays each year for several hundred dollars in gift cards.
The downsides of debit cards are overblown or irrelevant to many of us. Debit cards' failure to boost our credit score? My crowd doesn't care much for borrowing and may never bother with a credit score beyond their first mortgage. Greater liability for theft on debit cards? Sign for your debit purchases rather than use the PIN, and you'll get the same protections you get by using a credit card. Besides, most banks are pretty accommodating in theft cases. Overdraft fees for frivolous use of your debit card? This is no bigger a concern than credit cards’ interest and over-limit fees.
Again, bravo to Joan and her peers who use credit safely and to their advantage. But also cheers for the rest of us, even if we may be turning our backs on credit's potential benefits, for being smart enough to recognize we're just as or more likely to fall victim to its trappings.
4 Steps to Take if You Lose Your Job Near Retirement
Being let go from a job later in life can lead to financial disaster, but there are some things you can do to help lessen the damage.
By Tony Drake, CFP®, Investment Advisor Representative • Published
Divorcing a Trustee: Do You Need a Prenuptial?
For any corporate trustee you choose, there should be some minimum requirements, and it’s best to check its reputation ahead of time to find out if its trust relationships end amicably.
By Timothy Barrett, Trust Counsel • Published
The Best Cash Back Credit Cards
Smart Buying Looking for the credit card that pays the most cash back? These lenders pay the most, with the minimum hassle.
By Lisa Gerstner • Published
I-Bond Rate Is 6.89% for Next Six Months
Investing for Income If you missed out on the opportunity to buy I-bonds at their recent high, don’t despair. The new rate is still good, and even has a little sweetener built in.
By David Muhlbaum • Last updated
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner • Last updated
Your Guide to Open Enrollment 2023
Employee Benefits Health care costs continue to climb, but subsidies will make some plans more affordable.
By Rivan V. Stinson • Published
Watch Out for Flood-Damaged Cars from Hurricane Ian
Buying & Leasing a Car In the wake of Hurricane Ian, more flood-damaged cars may hit the market. Car prices may rise further because of increased demand as well.
By Bob Niedt • Last updated
What You Need to Know About Life Insurance Settlements
life insurance If your life insurance payments don’t seem worth it anymore, consider these options for keeping the value.
By David Rodeck • Published
The Best Travel Rewards Credit Cards
credit cards Business road warriors and leisure travelers alike can use a travel reward card to turn miles logged into other things – including more travel.
By Lisa Gerstner • Last updated
What Is an APR?
credit & debt Even for those who pay off their credit card balances every month, knowing your APR is part of keeping good credit habits.
By Rivan V. Stinson • Published