Your Money & Business
Will That Be Credit or Debit?
April 2018
By Nancy Burger
It's a question that pops up regularly at the check-out line, but it’s also a regular reminder that you have a choice concerning how to handle your spending.
I used to always default to my credit card when making purchases. While carrying a balance and paying exorbitant interest rates was never an option - I always paid the entire balance at the end of each month - I liked getting rewards points from the credit card company, so I charged everything from groceries to utilities to gas.
On the face of it, it doesn't seem like a big deal, right? Since I was able to readily pay my balance each month, I must not have been spending more than I could afford.
Not necessarily true. For some, being in the habit of using a credit card establishes a different mindset than when you use a debit card. Think about it: unless you keep hefty balances in your checking account on any given day, chances are good that your credit card has a much richer spending limit behind it. On the flip side, if you restrict all of your purchases to your debit card, you're ONLY using the money that you have available in your checking account (or whatever account it's attached to). Further, every debit purchase shows up immediately in your checking account, so you can see a real-time representation of what you're spending against your cash balances. It's an invaluable, built-in spending monitor, and one that I highly recommend.
There's another layer to this: since no one wants to endure the embarrassment of having a transaction declined because they've blown through their cash, dusting off the debit card requires budgeting (how does THAT word feel in your mouth?). Here's a sample list to help you identify your expenses items:
Fixed expenses:
Mortgage payment or rent
Car payment
Car insurance
Utilities
Health Insurance (incl. dental & vision)
Auto insurance
Homeowners or renters insurance
Umbrella insurance
Mobile phone
Cable/phone/internet
Variable expenses:
Car service/repair
Office supplies
Gasoline
Groceries
Pharmacy
Haircuts
Clothing
Entertainment/dining out
Gifts
These are suggestions, of course. You should fine-tune the list to reflect your spending items (and the truth is, you should be budgeting whether you use a debit card or a credit card).
It took me several months to get a handle on all the categories, but once I knew exactly where my cash was going, I felt a remarkable sense of control - one that I had never enjoyed before. It's not that I never use my credit card, but I reserve it for out-of-the-ordinary purchases, and this has worked for me. Another option: Some credit cards give a larger percentage back on certain categories (such as gasoline or restaurants); so you can opt to use your credit card for those types of purchases to take advantage of these selected rewards if you wish.
Since I've switched from using my "rewards" credit card to using only my debit card, I not only have an air-tight grasp of my spending habits, I’m no longer shocked when the credit card statement arrives (invariably, I would spend more than I thought). While I used to rationalize, "Well, I have to buy groceries anyway, so I might as well get rewards for them," using a debit card changed my mindset, and I found I was more careful even about grocery purchases. I found that, for example, I could more easily resist the "buy two, get-two-free" promotions if I knew I needed an oil change that particular month. My thinking shifted to a more cash flow-friendly and, therefore, measured approach to spending.
And about those "rewards" I got from my credit card? I get far greater rewards from knowing that my monthly spending is never beyond my means.
Please Note: In the majority of cases, you do not have to enter your "pin" to complete a debit transaction. Just opt for "credit" when using your debit card, and the money will still come out of the attached account.
I used to always default to my credit card when making purchases. While carrying a balance and paying exorbitant interest rates was never an option - I always paid the entire balance at the end of each month - I liked getting rewards points from the credit card company, so I charged everything from groceries to utilities to gas.
On the face of it, it doesn't seem like a big deal, right? Since I was able to readily pay my balance each month, I must not have been spending more than I could afford.
Not necessarily true. For some, being in the habit of using a credit card establishes a different mindset than when you use a debit card. Think about it: unless you keep hefty balances in your checking account on any given day, chances are good that your credit card has a much richer spending limit behind it. On the flip side, if you restrict all of your purchases to your debit card, you're ONLY using the money that you have available in your checking account (or whatever account it's attached to). Further, every debit purchase shows up immediately in your checking account, so you can see a real-time representation of what you're spending against your cash balances. It's an invaluable, built-in spending monitor, and one that I highly recommend.
There's another layer to this: since no one wants to endure the embarrassment of having a transaction declined because they've blown through their cash, dusting off the debit card requires budgeting (how does THAT word feel in your mouth?). Here's a sample list to help you identify your expenses items:
Fixed expenses:
Mortgage payment or rent
Car payment
Car insurance
Utilities
Health Insurance (incl. dental & vision)
Auto insurance
Homeowners or renters insurance
Umbrella insurance
Mobile phone
Cable/phone/internet
Variable expenses:
Car service/repair
Office supplies
Gasoline
Groceries
Pharmacy
Haircuts
Clothing
Entertainment/dining out
Gifts
These are suggestions, of course. You should fine-tune the list to reflect your spending items (and the truth is, you should be budgeting whether you use a debit card or a credit card).
It took me several months to get a handle on all the categories, but once I knew exactly where my cash was going, I felt a remarkable sense of control - one that I had never enjoyed before. It's not that I never use my credit card, but I reserve it for out-of-the-ordinary purchases, and this has worked for me. Another option: Some credit cards give a larger percentage back on certain categories (such as gasoline or restaurants); so you can opt to use your credit card for those types of purchases to take advantage of these selected rewards if you wish.
Since I've switched from using my "rewards" credit card to using only my debit card, I not only have an air-tight grasp of my spending habits, I’m no longer shocked when the credit card statement arrives (invariably, I would spend more than I thought). While I used to rationalize, "Well, I have to buy groceries anyway, so I might as well get rewards for them," using a debit card changed my mindset, and I found I was more careful even about grocery purchases. I found that, for example, I could more easily resist the "buy two, get-two-free" promotions if I knew I needed an oil change that particular month. My thinking shifted to a more cash flow-friendly and, therefore, measured approach to spending.
And about those "rewards" I got from my credit card? I get far greater rewards from knowing that my monthly spending is never beyond my means.
Please Note: In the majority of cases, you do not have to enter your "pin" to complete a debit transaction. Just opt for "credit" when using your debit card, and the money will still come out of the attached account.
Co-founder Nancy Burger started her finance career on Wall Street in the 1980’s and now works as a freelance analyst and writer for a money management firm. She has contributed to articles that have appeared in Forbes.com, Nasdaq.com, TheStreet.com and CNBC.com.
