Why You Should Stop Using Your Debit Card

It amazes me that I still come across people who use their debit card as their primary card for making purchases – and their bank account for paying bills that could otherwise be paid with a credit card. Many of these people I talk to are often uninformed about the benefits and perks of credit cards in general. They are usually surprised when I detail all the trips I’ve booked with points and miles, the cash back I earn every month, and the other benefits and credits that I have at my disposal from my credit cards. My message to the debit-card audience is always the same: If you are using your debit card, especially as your exclusive means of payment, you are leaving money on the table. Period. Not only are you losing out on lucrative points or miles, but you’re also losing out on a host of other benefits and protections. You’re probably holding your credit score back, too.

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I realize there are countless debit card and credit card options with wildly varying degrees of points, miles, protections, and tangible and intangible benefits, and if you want a side-by-side comparison of two or more cards, I’m sure you can find it. Since I know people will be quick to point out, for instance, that some debit cards do offer points programs and some credit cards don’t offer trip cancellation insurance, I’ll state at the beginning that I’m going to speak in general terms regarding debit vs. credit cards for the sake of comparison.

First, the topic has been beaten to death, but it’s important to get it out of the way because it’s so important: Credit cards have better point/mileage programs than debit cards. The vast majority of debit cards have no point earning program, and the few that do often require you to affirmatively opt-in to the program, have a limit on the points you can earn, or have a minimum spending requirement. Now, we all know that the point and milage programs on credit cards vary widely in earning and redemption potential, so it’s important to fully research which card(s) would best fit your spending habits (Nerdwallet is a good site).

At the bare minimum, you should be able to get a credit card that gives you 1.5% cash back (like the Chase Freedom Unlimited) or, if you have better credit, 2% cash back (like the Citi DoubleCash).

To illustrate how you’re leaving free money on the table every month by using your debit card, you don’t even have to look past those percentages – you’re losing out on at least 1.5% each month.  So, for instance, if you normally spend around $2,000 monthly on your debit card, you’re missing out on around $30 a month. That may not seem like much – or worth the trouble of “revamping” your finances and how you spend money on a regular basis – and I understand the hesitation and reluctance. But, applying for a credit card, setting it up, and learning to use it (the same way you currently use your debit card) is a one-time event.

If keeping track of multiple credit cards is too burdensome, you can still earn a decent return by simply switching out your debit card for a single credit card – it really is that easy. After having a credit card such as the Chase Freedom Unlimited for three years, that $30 a month savings turns into over $1,000. And, that’s just the beginning. When you start adding additional credit cards to suit your lifestyle and spending patterns, you can end up saving thousands of dollars a year, even accounting for the yearly fee for such cards.

Further, credit cards are essentially monthly interest-free loans. Since the balance for the previous month’s (statement period’s) purchases is not due for several weeks after the charges are made, you can make purchases today without paying for them for several weeks. This is a nice segue into my next point that credit cards make it easier to balance your checkbook or your accounts.

Instead of having 20, 30, or 50 different entries on your bank account for each debit card use, you have one payment for your credit card bill.

For budgeting purposes, it’s just as easy to review your credit card activity online to track spending as it is to review your bank account. Many credit card companies allow you to easily export your statements or transactions into Excel, Quicken, PDF, or CSV format, and some credit card companies, such as American Express, even allow you to “tag” each transaction into your own custom categories, making budgeting even simpler.

If you can successfully budget using your debit card and bank account, you can successfully budget with a credit card.

Debit and credit card fraud and theft is another difference. While the majority of both debit and credit cards have fraud and zero liability protection, the effect on the cardholder is different. When your debit card is stolen and purchases are made (or money is withdrawn), that money is gone from your bank account instantaneously. Depending on your bank and issuer, it may take days or weeks to unlock your account and get the funds back into your account. If you were about to pay your mortgage or car payment, this would place you in a terrible position. On the other hand, if your credit card is used to make unauthorized purchases, it’s comparatively not a big ordeal. You can normally dispute the charge online and continue using your credit card as you normally would. And, the big plus: You don’t have to pay the fraudulent charge immediately and then get reimbursed at a later date.

Along those lines, credit cards normally have some sort of purchase protection and/or extended warranty where the issuer will reimburse you if the price of an item goes down within a certain time period or if the product fails within a certain time period (both normally extending past the merchant’s or manufacturer’s price guarantee or warranty period). Not necessarily a benefit you’ll use with frequency or keep up with, but it’s there if you need it. For reference, I’ve found that Citi’s “Price Rewind” is the easiest of these programs to use.

Similarly, many credit cards – and all of the travel-related credit cards – offer trip protection or trip cancellation insurance. Purchased as a standalone service from a travel site, this trip insurance can cost well over $100 per person, depending on the trip and situation, and may have a deductible. Instead, when you book and pay for your trip with certain credit cards, this insurance is free, and in the event you have to cancel a trip for a covered reason, the credit card issuer will reimburse you, in some cases, up to several thousand dollars per person with no deductible. Again, not necessarily a benefit you’ll use with frequency (let’s hope not), but a benefit and piece of mind nonetheless.

Finally, having a credit card – or even multiple credit cards – is a great way to boost your credit score. Yes, you read that correctly. If you use your card responsibly – that is, making your payments on time, paying your balance in full each month, and keeping your running balance low in relation to your credit limit (your utilization rate) – you are building a positive credit history and showing lenders that you can manage credit. Having a strong credit score is important for many reasons, but in this context, a strong credit score will help you attain those credit cards that offer the most benefits and rewards, which often require high credit scores.

Ironically, adding additional credit cards can be beneficial to your credit score.

As long as you don’t increase your spending, a new credit card adds to your overall, cumulative credit limit, thereby decreasing your utilization rate. If you are already responsibly managing your debit card spending and bank account, you could be “getting credit” for your good habits by simply using a credit card instead. Similar to renting a house versus buying a house, you will be getting something in return for your on-time payments and good money management.

Everyone’s financial situation is different, and I understand that some people may be reluctant to switch over to credit cards due to the temptation to overspend, the adversity to change, and feeling overwhelmed by the myriad of options. However, I have been able to net thousands of dollars by simply using credit cards suited to my spending habits instead of relying on my debit card. I hope you will think about the money you may be leaving on the table.

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