Credit Card or Debit Card?

Are you maximizing your perks and benefits with a credit card? Have you considered using a credit or debit card to maximize your benefits?  The debit card is a safe way to pay for things because you can only use what’s in your account. You may have a feature, depending on the bank, where overdraw fees can be pulled from your savings account if you have one.  But what if you applied the same strategy to a credit card and did not use a debit card?  Of course, you would have to pay off in full each month and not spend more than what is allotted to your checking and savings account.  Applying this strategy to a credit card rewards you with cash back, travel benefits, and much more.  Does your debit card do that?  I have recently applied this to my living situation and have repeated the benefits for the last 2 years.  I went with cashback because it gave me more flexibility in using our funds.  I view travel benefits as just limiting you to travel benefits.  

You MUST be disciplined not to overspend and then be charged high interest because these benefit perks cards usually come with higher interest.  I do not support a credit card as an endorsement; this is my opinion and has worked well for my family.  Below are some of the pros and cons of credit cards and debit cards. 

Credit Cards

Rewards and Cash Back: Many credit cards offer rewards programs, such as cashback, points, or miles for every dollar spent. These rewards can add up over time and be redeemed for travel, merchandise, or statement credits.

Building Credit History: Responsible credit card use helps build credit history and improve credit scores. A good credit score is essential for securing loans, mortgages, and even better interest rates.

Purchase Protection: Credit cards often come with purchase protection benefits, such as extended warranties, price protection, and coverage for damaged or stolen items. This can provide peace of mind when making significant purchases.

Fraud Protection: Credit cards typically offer better fraud protection than debit cards. If your credit card is used fraudulently, you are usually not liable for the charges, and the card issuer will investigate and resolve the issue.

Travel Benefits: Many credit cards offer travel-related perks, such as travel insurance, rental car insurance, and access to airport lounges. These benefits can make travel more convenient and cost-effective.

Debit Cards 

Debit cards typically don’t offer the same perks as credit cards for a few reasons:

Business Model: Credit card companies earn money from interest and fees charged to cardholders and transaction fees paid by merchants. This revenue allows them to fund rewards programs and perks. Debit cards, on the other hand, primarily draw from your bank account and don’t generate the same level of revenue.

Risk and Liability: Credit card issuers take on more risk by lending money to cardholders, so they offer incentives to encourage responsible use and timely payments. Debit cards don’t involve lending, so banks have less incentive to offer rewards.

Consumer Behavior: Credit card rewards programs are designed to encourage spending and loyalty. Since debit cards are linked directly to your bank account, they don’t have the same potential to drive consumer behavior in a way that benefits the bank.

Cost of Benefits: Offering travel perks, cash back, and other rewards can be expensive. Credit card companies can justify these costs because they make money from interest and fees. The cost of providing such benefits would outweigh the potential revenue for debit cards.

Regulatory Differences: Different regulations govern credit and debit cards. Credit cards often offer more flexibility regarding benefits, while debit cards are more restricted.

A credit card might be a better option if you’re looking for perks and rewards. Just be sure to use it responsibly to avoid debt and interest charges. 

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Chris graduated from the University of Maine, where he played hockey on a scholarship, and retired from professional hockey in 2007. In the community, he remains engaged, serving as a youth hockey coach. Chris holds the CERTIFIED FINANCIAL PLANNER™. Outside the office, he enjoys trying new food and wine, reading, traveling, playing golf and hockey, fat tire biking, and donating to local charities. His passions include being a husband and dad, lake life with the family, watching his son and daughter play sports, and spending time with his wife. To learn more about Chris, connect with him on LinkedIn.

Heisten Financial, LLC is a registered investment advisor with the SEC. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed.