Debit or credit? Pay now or pay later? The New York Times has a story that looks at the pros and cons of credit and debit cards. In July I took a stab (story link) at the issue as well. You should read both stories. I'm more biased toward credit cards, but I'm not one of those fanatics who says that debit cards are evil and should be avoided at all costs. But, given the choice, I'll take credit over debit.
From the Times:Federal law also protects you if you need to dispute charges on a credit card, but not if you use a debit card or other forms of payment. If you paid cash or used a debit card, the retailer already has your money. So you have a lot less leverage, and there’s no guarantee you’ll get that money back. But if you pay for something with your credit card and aren’t happy with the purchase, your card issuer can legally withhold payment from the retailer until they resolve the dispute, and you won’t be charged.
Read the rest of the story here (link).
Wednesday, January 7, 2009
Credit and Debit Cards: What You Need to Know
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12 comments:
I buy groceries on my debit card, since I usually take advantage of the cash back at the POS terminal time. Easier than going to an ATM - But for anything else, it's always a credit card. Then PIF on the credit card each month. Also, some cards I think extend warranties on products and/or provide additional protection of merchandise that debit cards dont ?
Hanadarko, yes, some cards will provide better warranty coverage (extended).
My reason for using credit over debit has to do with risk shifting. I'd just rather have the credit-card issuer shoulder all of the risk in the event that my card is compromised.
We are using our debit card from our bank now to buy groceries, prescriptions and gas. We used to use American Express Gold Card to purchase our groceries each month and PIF at the end of the month. Amex slashed our credit card limit saying we were using our card at places they didn't sanction. Used to be a time when Amex said use your card at grocery stores, pharmacies and gas stations. Now these places are taboo? The grocery store we shop at is a well-known store! CifIcare
CifIcare, you had to go and mention Amex, didn't you? Ha!
American Express went out of its way to make sure that its customers started making everyday purchases at places like fast-food restaurants, gas stations, and other places like that. It then turned around and started citing shopping choices as another reason for chopping credit limits.
Talk about walking your customers off the plank.
CM,
What about when your debit card bears the master, visa logo and the sales clerk asks, "is this credit or debit"? If you say credit, the money is still deducted from your checking account the same way if you had said debit. So, then, why do they ask? Thanks and happy new year--Jon
Jon, not sure why they ask that question. It could be that they don't accept debit at their place, but they do accept credit. The debit card, that bears the MasterCard or Visa logo, may allow the transaction to go through nonetheless. It could be the way the transaction is coded.
But I am guessing here. I don't know off the top of my head.
By the way, thanks to you and your blog, I saw an increase in my FICO (all derived from the examples set forth in this blog). Thanks a mil. Hope to see the 700s by year end! -Jon
Jon, my goal is to help all of my readers master this credit game.
That's great that you're enjoying success -- regardless of how large or little it is. That you're making strides is all that I care about.
Thanks for "thank you." Much appreciated.
The "credit or debit" question should really be "sign or PIN?" If you say "credit," you'll have to sign the receipt.* If you say "debit," you'll have to enter your PIN into the point-of-sale device. Some merchants, e.g., Walgreens, will allow you cash back on PIN transactions.
* Some merchants don't require a signature on petty amounts -- typically $25.00 or less.
Debit and credit go through different networks. Debit is usuallly cheaper for the merchants.
Logic's response is correct.
A debit transaction is usually processed through an interbank network (e.g.: STAR, NYCE, PULSE, etc.). Of course, a debit transaction requires the cardholder to enter a PIN.
Merchants incur a smaller interchange fee for PIN debit transactions. While exact fee depends on various factors, it is only a nominal, fixed fee.
That's why some merchants even offer cash back with PIN debit. They won't get charged more in interchange if they debit a higher amount from your account. Not to mention that they also reduce their cash liability (if they gave the cash to you, it's less cash that a potential thief can rob from them)
A credit transaction is usually processed through credit networks (e.g.: Visa, Mastercard, Discover, American Express, etc.)
From the merchant's standpoint, it can become an expensive proposition. There is both a fixed, per-transaction fee and a percentage fee! Both fees depends on various factors (including what type of card you're presenting to the merchant!)
This is why you can see some merchants grimacing when you ask to charge $1.19 to that shiny new American Visa Signature card.
For those of you participating in Debit Cards rewards programs, this is also why financial institutions tell you to process the transaction as credit, rather than debit. They get more money from the merchant and present a small portion of that to you as a reward.
The American Visa Signature card:
http://www.creditmattersblog.com/2008/11/american-visa-signature-card-you-cant.html
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