You're at the store and the cashier rings up all of your items and then asks
you how you want to pay you open your wallet and stand there torn between
paying by debit or paying on credit which do you choose well this purchasing
decision may seem insignificant choosing the wrong card for your transactions can
have dire financial consequences and in this video i will share with you how you
can avoid this common money mistake and make the right purchasing decision and
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life-changing content i know what you're thinking is the choice between paying on
credit or paying by debit really that big of a deal well a recent poll has
shown that only 14 of people routinely pay by cash meaning that paying with
plastic is now the preferred method while these cards save us from having to
carry around loose change they can also be detrimental when used improperly but
before we get into why someone would choose to pay with one card over another
let's briefly go over how both credit and debit cards work
debit uses your own money which is pulled directly from your bank account
to pay for something it's basically like cash except you get the convenience
factor of using your debit card instead of carrying around a lot of cash when
you make a purchase when you pay for something using credit you're borrowing
money from a lender to cover that purchase instead of using your own money
as you know if you don't pay back the money on time you'll face some hefty
interest fees now part of the issue with debit and credit cards is that they are
accepted just about everywhere which means that you need to understand which
card you should use now ask financial gurus like dave ramsey and they will
swear that debit cards are the holy grail for making payments and that using
credit cards should be banned but i think that the question of whether to
pay with debit or credit is not as simple as that in fact i think that each
type of card is suited for a particular type of spender and in this video i want
to outline reasons for using both and which card you should use based on your
spending personality but first which way do people tend to sway in the debit
versus credit debate in a 2018 survey payment processor tsys asked
1222 consumers which payment form they prefer 54 chose debit cards and over the
years that tsys has been conducting its u.s consumer payment study debit remains
preferred for daily purchases of the gas station supermarket and discount store
however it is also overtaking credit as the preferred way to pay at department
stores previously credit was the most popular payment method at department
stores most likely due to people preferring credit for higher value
purchases but now pulling out your debit card is the preferred method for the
majority of consumers so if the majority of people are paying by debit this must
be the obvious answer to the debt versus credit debate right well let's now look
at when paying with your debit card makes sense and the other benefits of
this payment method reason number one you want to avoid debt if you don't have
any debt using a debit card is a great way to stay out of it since your debit
card is connected to a checking account you can theoretically only spend what is
in the account and for many this is a good thing recent studies show that more
than 55 percent of americans have credit card debt with the average debt balance
hovering around 6 000 therefore by paying on debit you can
have the convenience of paying with plastic without the risk of getting into
more debt reason number two you're bad with bills some people have their bills
systemized and the act of paying their creditors each and every month is a
breeze however these people are far and few between which means that the
majority of people do struggle to make timely bill payments if you have enough
self-awareness to know that you're not good at paying bills then you should use
a debit card unlike a credit card you won't receive any bills for using it
reason number three you want to limit your spending i often preach that
relying upon the envelope method of budgeting is a great way to control your
spending as you are limited to spending only a preset amount of cash each and
every month however for most people carrying around wads of cash is both
uncomfortable and inconvenient and luckily debit card spending can fix this
issue you see most banks will allow you to set maximum spending limits on your
debit account meaning that even if you wanted to splurge on that 5 000 tv your
debit card wouldn't let you so as you can see there are definitely situations
where paying with debit makes sense with that being said there are numerous
reasons why paying on credit is advantageous which i will now go over
reason number one building credit one of the primary benefits that credit cards
offer over debit cards is that through their use they can help you establish
credit you see when you get a credit card the card's use is reported to the
major credit bureaus and therefore show up on your credit reports these credit
reports are very important because they are often consulted in routine life
activities like purchasing a home getting a cell phone plan or applying
for a job in fact having good credit doesn't only mean you'll be able to
acquire these things but often the better credit score you have the more
preferable rates you will receive reason number two protection from fraud
if you were to lose your wallet which card would you be more concerned with a
stranger now possessing your debit card or your credit card well i think most
people would say the former and they would be right you see when criminals
fraudulently use your credit card they're spending your credit card
issuers money however when criminals fraudulently use your debit card they're
spending money from your checking account in other words if someone uses
your credit card without your permission you'll have time to report and manage
the fraud before the bill is due with a debit card however the money leaves your
account immediately whether the charge is fraudulent or not and depending on
your bank it may take weeks or months to get your money back in the meantime you
can miss important bill payments or have to borrow money for daily expenditures
and whether you're victim to credit card fraud or debit card identity theft
federal law dictates your level of liability the fair credit billings act
fcba caps the liability of credit card users at 50
most credit card issuers take this a step further and don't charge card
holders anything for fraudulent charges but even if your card issuer doesn't
offer that protection the fcba says you're not responsible for any
unauthorized charges if you report the card loss before it's used this limited
liability is one of the main reasons experts recommend using credit cards
especially for online purchases reason number three rewards while it would be
nice if everything in life was free if you were going to be forced into
spending on day-to-day goods you may as well make it worth your while by
receiving rewards and other bonuses nowadays credit card companies offer
very lucrative reward programs in order to entice you to sign up and these
rewards usually come in the form of either cash back or points cashback will
usually range between one and five percent of each purchase or statement
total and points will vary depending on the amount you spend and where moreover
some credit cards even offer signup bonuses where you can get an initial
lump sum of cash or points making it all the more enticing to pay with credit
over debit or even cash the best part is that as your credit grows with increased
use you start to become eligible for better rewards making spending a
slightly less painful endeavor before we continue many of you have been asking me
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reason number four short-term financing when most people charge their credit
card they simply process their purchase and go on about their day but more savvy
users understand that when you spend on credit you are effectively getting a
short-term loan as you know when you use a debit card the purchase is deducted
from your checking account within a few days but when you use a credit card you
get a grace period you don't pay for the purchase until your billing cycle ends
and your statement balance is due and with most credit cards you avoid
interest completely if you pay your bill in full in other words you can get an
interest-free loan for the period between making a purchase and paying
your bill reason number five easier travel when you're on the road debit
cards can throw a wrench into your travel plans many hotels gas stations
and rental car companies place holds on customer cards that claim an amount of
money until the final cost becomes apparent let's say you're checking into
a hotel for five days if the hotel charges 200 per night the hotel will
likely place a hold of a thousand dollars plus extra money for incidentals
if you're using a debit card that money will be frozen until you check out and
that's even if the company accepts it not exactly the making of a stress-free
vacation is it on the other hand when you use a credit card a hold reduces
your available credit and not the money in your bank account which means it
won't put a damper on your vacation budget now it's time to answer the
burning question of whether you should be paying on credit or debit again there
is no blanket answer that suits everyone and thinking that there is is in fact a
critical money mistake you must avoid so first who should be spending on debit
paying with debit is best suited for those who are new to the money
management game or who struggle with financial restraint because debit cards
limit your spending and allow you to avoid paying bills every month they
reduce your susceptibility of overspending or incurring late fees
which only worsen your financial situation if you were already struggling
now sure paying exclusively on debit forces you to miss out on rewards and
building credit but these trade-offs aren't worth the potential falters that
could come with irresponsible credit card spending on the flip side paying
with credit should be used by those who already have their financial bearings
once someone has their bill payments automated is budgeting regularly and can
manage their debt then and only then should they start to pay via credit you
see paying with credit cards comes with its risks like potentially getting
yourself into debt and having to pay ridiculously high interest fees and the
rewards of cashback and extra payment protection should only be pursued once
you have set up a solid financial foundation and there you have it the
answer to the long-standing question of whether you should pull out your debit
or credit card when making your upcoming purchases hey it looks like youtube
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