My post the other day on 5 Good Reasons to Avoid Debit Cards stirred up some discussion on the lack of consumer protection offered by debit cards. The bottom line is that after a fraudulent charge on your debit card, your money is gone from your checking account until first you notice a transaction was made and second the bank completes an investigation. You could end up with a zero or negative balance in your most-used bank account for a period of time. All of this to me is unacceptable.
Thanks to The Consumerist, I noticed famous former fraudster, Frank Abagnale, agrees with this premise [Wall Street Journal]. You may be familiar with the movie that dramatized his life, Catch Me If You Can. According to the article, he has been teaching the FBI how to catch white-collar criminals.
These days, Mr. Abagnale never uses a debit card and writes checks rarely, paying for most everything with a credit card because, he says, credit-card issuers do the most to shield consumers from fraud. “My money is never at risk, only their money,” Mr. Abagnale says. But he adds that he pays the bill in full each month to avoid getting into debt.
I’ll follow the expert’s advice on this one.
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11:42 am (reply)
...yeah, OK, all this is true. I’m sure some of you will think I’m hopelessly naive—(go ahead, I don’t know you, so think whatever you want)—but I’ve found that it IS true that I personally tend to spend more with a credit card than with a debit card.
Maybe the credit-only strategy works well for people who are a) VERY disciplined and have a very disciplined spouse and family when it comes to spending b) already out of credit card debt and c) will ALWAYS pay off the cards in full every month.
Yeah, yeah, justify credit cards every which way you want, but when push comes to shove, very few people meet all those requirements….
Sorry to sound cranky, but most people just can’t handle credit cards. That’s the unpleasant truth.
3:05 pm (reply)
there is no doubt that using credit cards is the better method. It’s just a shame that college kids think credit cards as debit cards.
7:52 am (reply)
I’m still sticking with debit card over credit for most small purchases. But thanks for getting me to study the pros/cons of each. Ultimately, it has as much to do with the individual rather than a universal rule.
But, I have another thought that may be more likely to be a universal truth/falsehood for most people: does keeping a credit card that you’ve had for many many years help your credit score more than changing credit cards every 2-3 years (to match the latest APR or rewards fad or style)?
Even though I went mostly-debit card a year ago, I’ve kept my 2 credit cards with are 6 and 8 years old, because I read someone keeping a credit card with a long history is liked by FICO. Am I wrong?
9:06 am (reply)
John: Keeping one card with the longest history is all that’s necessary to keep your score from dropping due to a reduced credit history. FICO is changing the formula soon, though, so at some point the length of credit history may play a smaller role in determining your score. As far as whtehter to keep your cards or change every few years to maximize rewards—it doesn’t have to be one or the other. Keep an old card to keep your FICO score up and stay on top of what’s currently out there to get the most out of rewards.
6:19 am (reply)
6:46 pm (reply)
The best thing is when people are convinced the debit card is a credit card because when they swipe it at the grocery store, they can hit “credit” and sign for it instead.
Credit is the way to go, in my opinion.