Why You Should Ditch Your Debit Card

I’ve only been interested in points and miles for a few years, but I’ve always used some kind of credit card for everyday purchases, never a debit card. When I see people use a debit card at the store or in a restaurant, I can’t help but wonder why?

But don’t worry, I don’t start chatting with people I don’t know about their money and spending habits. I don’t want to appear stalkerish and start asking random strangers about their debit card use – don’t want to be banned from my grocery store.

Using a debit card for everyday purchases is not a good money habit. I understand why people don’t use credit cards, and you’ll get no judgement from me if you don’t. Putting the rewards aside, be it the cash back or points and miles, nobody should be using debit cards for anything but withdrawing cash from the ATM. If using credit cards isn’t your thing, you are better off using cash.

Let’s look at why you should ditch your debit card or only pull it out of your wallet when you need to get cash.

Fraud Protection and Account Security

While banks do offer some fraud protection on debit cards, the measures are not nearly as tight as for credit cards. When thieves get ahold of your debit card number, the money is gone from your account instantly. You might not be immediately aware that the money is gone, which can lead to bounced payments and insufficient funds fees.

Missed payments, even if they aren’t your fault, might get reported to credit bureaus and lower your credit score. It might take days or even weeks for the bank to investigate the fraudulent charges and to restore the funds. There’s always a danger of having a large sum of money tied up in a fraud investigation and having problems with cash flow.

Credit cards offer their users much better protection against fraud. The money spent on credit card is the bank’s money (until you pay the bill) and the banks care a lot more about their own money than they care about yours. Unauthorized charges on credit cards are dealt with in days rather than weeks.

Often, the credit card will flag suspicious card activity before the customer even had a chance to realize there was a fraudulent charge. And the best part? You aren’t on the hook for any unauthorized charges while the credit card company investigates.

Consumer Protection and Insurance

Some credit cards offer extended warranties, price protection and rental car insurance. These benefits could be very valuable and worth a lot. By paying with a debit card, you don’t get to enjoy these benefits.

Check which of your credit cards offer the best price protection or extended warranty coverages. This could save you a lot of money on big ticket items, such as appliances.

If something goes wrong with a purchase, and the merchant isn’t willing to work with you, you have the ability to dispute charges. For example, if your brand new expensive appliance arrives damaged and the merchant isn’t willing to work with you, the credit card company will work directly with the merchant to resolve the issue.

Credit card companies have a lot more sway than individual consumers, so let them do all the heavy lifting!

Grace Period and Convenience

You can leave the money in the high-yield checking or saving account before paying your credit card bill. You also get a consolidated bill once a month, which makes personal or business bookkeeping easier. Most credit card companies now offer spending breakdowns by category, so it’s easy to see exactly where the money is going.

Credit Scores

Credit scores are becoming increasingly important. Everyone, from utility companies to cell phone providers to potential employers check credit scores. One of the best ways to build up and maintain a healthy credit is to use credit cards responsibly.

By using a credit card, you are building a credit history, which is a huge component of your credit score. Borrowers with a good credit history get better interest rates on car loans and mortgages. This alone can save thousands or even tens of thousands of dollars over the life of the loan. Debit cards, on the other hand, don’t show up on the credit reports and have no effect on the credit score.

Credit Cards Welcome Bonuses

Credit cards and banks want to attract the best customers and therefore often offer very generous welcome offers and bonuses. The value of a bonus can be anywhere from $50 to well over $1,000.

Not all cards give the same welcome bonuses, so consult our best monthly cards list to find the cards that offer the most value.

Debit cards offer no welcome bonuses, so you are basically leaving money on the table.

Credit Card Rewards

The best perk of using credit cards is the ability to earn reward points or miles on everyday spending. Combined with generous welcome bonuses that credit cards offer new customers, these can add up quickly.

Very few debit cards offer rewards for your day-to-day spending. The ones that do offer only a fraction of what is offered by credit cards and are not worth your time.

Credit card rewards range from specific store points to flexible “currencies,” such as Ultimate Rewards or Membership Rewards points, to valuable airline miles. Learn how to use these effectively and you will be earning thousands of dollars worth of free or discounted travel each year.

Travel Perks

In addition to generous welcome bonuses, many credit cards provide excellent travel perks. How does a complimentary lounge access sound? You won’t find a debit card that will let you into airport lounges for free!

Another great benefit of some credit cards is free checked bags for domestic trips. This alone can save you hundreds of dollars each year!

A few credit cards, such as The Platinum Card® from American Express or the Chase Sapphire Reserve®, offer travel delay protection and travel interruption insurance. These benefits could be invaluable if you run into bad airport delays or if your checked bag is lost or delayed.

Merchants That Require You to Use a Credit Card

It’s infinitely easier to rent a car or get a hotel room with a credit card. Hotels and rental car agencies prefer credit cards over debit because if they find any damage to their property, they’ll just charge the credit card on file.

If you want to use a debit card, they will usually place a hold of several hundred dollars. That’s cash you can’t use for everyday spending and can’t access in case of emergency.

Even some gas stations could place a hold on your debit card. That’s just another thing to worry about if you aren’t using a credit card instead.

Treat Your Credit Card as a Debit Card

There are lots of advantages to using credit cards. But let’s not forget about the pitfalls. If you feel like you can get in trouble with credit cards and overspend, then none of the rewards you can earn with a credit card are worth it.

First rule of thumb in this hobby is know thyself. Creating a realistic budget, and sticking to it, can help keep the credit card spending under control.

Credit cards should always be paid off in full every month. You can pay the credit card bill anytime between the statement closing date and the due date. Personally, I sleep better paying my credit card bills a few days before the due date.

And autopay is your friend! We are all busy, so trying to remember all the statement closing dates and the due dates is unrealistic. Set up the autopay for a date that makes sense to you and make sure there’s enough money in the checking account for the entire credit card bill.

By following these steps you’ll get the best of both worlds – all the travel rewards that come with credit cards and you won’t pay a penny in interest charges!

Final Thoughts

The only time it doesn’t make sense to use a credit card is when you need to withdraw cash from an ATM. This will be considered a cash advance and will incur huge fees. In fact, this is the only time when I get my debit card out of my wallet.

Various credit card perks add up quickly and can save you lots of money (and hustle) in the long term. However, using credit cards responsibly is the key. Carrying a balance or incurring late fees will erode all benefits and rewards.

By using credit cards responsibly, you are building good credit, which can save thousands down the road when you need to take out a mortgage or a car loan. So put that debit card away, learn about the best credit cards and start using them for everyday expenses.

Travel well,

Anna