savings account

That never really makes a lot of sense to me. All it's doing is moving your own money from checking to savings. You could do that. Now, some of the credit card ones match the change (at least initially), but I still think you'd be better off with a good rewards card.

Brian

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I don't understand the point of a debit card. Why not use a credit card and use someone else's money for a month? If you have the money to pay for whatever anyway, you'll pay the balance in full at the end of the month, so there's no interest charge. Use some kind of rewards card and get additional benefit(s).

Elizabeth Richardson

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For those who can handle their finances (that's all of us here, right?) that's the best policy. I use my cards for everything I reasonably can. Besides the cash back, you get a list of your monthly expenditures.

Brian

Of course, I agree with you. But every time I bring this up, almost exactly as you did, I find people quoting the likes of Dave Ramsey, "responsible use of credit cards doesn't exist." I offer back that as you suggest, I have a cash back card which puts 2% into a 529 account. That account now has just over $8000 as my wife and I both can run some reimbursed business expenses through it. Never paid 1 cent of interest and the card has no annual fee. I'm then told that psychologically, it's observed that people spend more on credit cards than with cash. That's when I give up, but my view remains unchanged. The cards also offer minor perks such as extended warranty, doubling the manufacturer warranty up to an extra year. Not to mention, how do you reserve a hotel room or car when traveling without a CC?

Joe

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I know someone who has trouble managing a credit card. By using a debit card, they make sure they stay out of trouble. It's a mind game, but whatever works...

-- Doug

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There is a gas chain near me, Arco, that has about the cheapest gas on a regular basis. BUT they require a debit card or cash, no credit cards. But the kicker is that the gas pump is essentially an ATM for the debit card and they charge you a fee for the use of the ATM. Once was enough for me, never again.

I totally agree with you. Now if I could get my Reward Points "rewards" w/o jumping through PITA hoops, my life would be serene.

Chip

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People are entitled to their opinions, but those are just that. opinions.

Debit cards can be used for such purposes, I believe. I recently rented a car online, and there was a choice for debit cards. As I recall, there would be extra steps if one went that route, but as I was using Discover I didn't investigate.

Brian

What card do you have, and what hoops?

Brian

There are facts to back up that opinion, however. Ramsey often quotes a study that shows that people spend considerably more when using a credit card as opposed to when spending cash. I know that I do, and I am much more frugal when using cash. We also see record levels of bankruptcy and foreclosure, which means that many people are having problems managing their finances.

A credit card is a tool. It can be a high risk tool in some hands, and a low risk tool in the hands of other people. Just like you shouldn't run a chop saw without a bit of training, you shouldn't be using credit cards if you cannot control your spending.

In my travels, I have been able to reserve a hotel room without paying for it. If you are going to gaurantee the room for late arrival, then you need some kind of card. But it is far from impossible to reserve a room with no cards.

I have also seen people get rental cars without a credit card. You might not get a Hertz or Avis car that way, but there are local rental places in most bigger cities that will rent for cash. If worse comes to worse, you can rent a van or pickup truck from U-Haul for cash.

-john-

I think probably some (maybe most) people do. But I doubt you can prove that all do.

I'm naturally frugal (sounds better than tightfisted) and the means of payment has little impact on how I buy things. I don't buy anything unless I've convinced myself that I need it. And I'm often a hard sell on that score.

But not everyone that uses one gets into such trouble. You could use that say, "there's no such thing as responsible use of home loans." Some people probably agree with that.

That's right. That's why I object to the blanket statement that "responsible use of credit cards doesn't exist." There are people who use cards day in and out, pay the bills on time, don't alter their spending due the access to credit, etc., etc. One would have come up with a definition of "responsible" that was so far outside the mainstream as to be meaningless to justify the statement.

[remainder snipped as I didn't have any comment]

Brian

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You are right, John. I think Elizabeth (I hope I am not attributing a thought she didn't mean to imply) and I were both thinking that if one has the cash to use a debit card, they may already have the discipline to spend only what they will pay at month's end. Does Ramsey's study differentiate between the 'pay in full' customers vs the ones who carry a balance?

Joe

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Actually, I'd take it a step further. Not only do I not understand the logic of using a debit card, I'd take it a step further and say that I don't understand the logic of spending money you can't afford to spend and don't have. It's not that I can't read, and therefore don't know that people, in fact, DO spend money they don't have, it's just that I don't understand it. I also don't understand diabetics who eat donuts and don't get exercise, but that's probably off topic. Yes, I occasionally do stuff that's probably not in my best interest, ( too much wine on a girl's night out comes to mind), but I don't understand people *consistently* doing things that are not in their own interest. Using a debit card is probably the least of these, but it makes the list and is on topic in this forum.

Elizabeth Richardson

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Brian, I think my point is that people who are using a debit card instead of a credit card are not adequately handling their finances. A debit card in the hands of the end user makes no sense whatsoever. The fee (to the merchant) for accepting a debit card is higher than for a credit card - at least that's how it was when they first came out, perhaps things have changed since I was in the loop on that stuff. The banks want you to use it because it increases their bottom line, but it seems to me that it has only increased prices for everything.

Elizabeth Richardson

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Visa Platinum from my local Credit Union @6.9% w/no annual fee. Pay it off every month.

We usually use the Reward Points for air travel (just used it for my

50th HS Reunion). It is restricted to only simple round trips to and from a single destination (no 1-way, triangle, or anything fancy) and must be booked at least 8 weeks in advance, with plenty of "no-go" blackout dates. PITA as we wanted to fly from Phoenix into Tampa and out of Ft. Lauderdale. Had to fly back to Tampa 1-way to catch the return trip.

Chip

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A year or two ago I rented a car with a debit card no problem. I was forced to do this as both my primary and backup credit cards that I carry in my wallet went offline at the same time. I was standing at the rental counter when both my cards got rejected so I thought I was screwed. Previous to this trip rental companies didn't take debit cards, but the agent told my that the week before my arrival they had started taking them, so I was able to use my debit card. I think the only trick is that they put a hold on a large amount in your account as a deposit on the car.

-Will

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Ah. I don't travel much. The Citicard I use has a reward point system. I get gift cards because I don't want to spend time figuring out if the merchandise is a good deal. I'd just rather have $50 card for gas or Target or whatever. Discover just has cash, and you can also get bonuses when you use it to buy from their stable of "partners".

Brian

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A theory of debit cards providing discipline, as I understand it, is that one cannot spend more than one's current assets. The problem with this theory is that, just as with a credit card, one is still capable of spending more than one's current capital (assets less liabilities).

Specifically, because debit cards are generally linked to checking accounts, one can write checks and then draw cash (via debit card) from the account before the checks clear. Obviously this can result in bounced checks, overdraft fees, etc.

The "keep the savings" program exacerbates this problem by drawing more cash out of the checking account, increasing the risk of bounced checks - though the transferred cash isn't even being spent!

Mark Freeland snipped-for-privacy@nyc.rr.com

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In the same way Elizabeth can't understand the use of debit cards (and I strongly share with her view), I can't understand the appeal of the "keep the change" program. I make a $49.75 purchase, and instead of having nearly a dollar in cash come to me as a bonus (or 50 frequent flier miles, etc.) $0.25 of my own money gets moved from my checking to my savings account? Is the practice of emptying one's pocket into a jar every night only to have the pleasure of paying nearly 10% to have Coinstar count it for you every couple months so common that this program was inevitable?

Joe

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I also use a Citi card for the reward points, but I just got a mailer from Countrywide for a credit card that pays back 2% of purchases towards my mortgage (I have a Countrywide mortgage). Looks interesting...

-Will

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