Paying with a debit card is leaving money on the table, and 4 more reasons I only ever pay with credit
- I never pay for things with a debit card because I prefer to use my credit card, where I'm always getting the equivalent of 2% back or more on my purchases.
- Credit cards also offer better protections, less liability in case of fraud, and more leverage with merchants.
- As far as I'm concerned, there's rarely ever a reason to pay with debit.
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Nothing makes me cringe more than going to to stores and restaurants with my friends and watching them pay with cash or a debit card. Or worse, when the occasional person still pulls out a checkbook and writes a personal check, carefully noting their purchases in the register while the line stacks up behind them. Luckily, many businesses don't take checks anymore, but all of them still take debit cards (and even offer cash back sometimes).
To me, using a debit card is a violation of Being A Savvy Consumer 101. Here are the top five reasons why you should never pay for things with a debit card:
1. You bear more fraud liability
If the merchant's card terminal is hacked, it could result in your entire bank account being drained, taking weeks or months to straighten out. In the meantime, you won't have cash to pay for rent, bills, and other necessities. Meanwhile, if fraudulent activity occurs on your credit card, your liability is limited to $50 by law (and most card issuers waive this, taking your liability to zero).
2. You won't get any credit card protections on your purchases
With the exception of Citi cards (Citi has removed most purchase and travel protections from its cards), the majority of premium credit cards offer some form of additional protection on purchases. These can include extended warranty protection, protection against damage or theft, and more. The specifics of these protections will vary depending on the specific card product, so review your card benefits statement for details.
3. You're leaving money on the table
For everyday purchases, you should be getting a minimum of 2% back, because you can get 2% cash back on a card with no annual fee (like the Citi DoubleCash Card or Fidelity Rewards Visa Signature Card). With premium travel credit cards offering rewards points when spending in bonus categories, it's not unusual to earn far more.
I earn an effective minimum 4.5% cash back (or more) on travel and dining purchases with the Chase Sapphire Reserve, since I spend the points on travel. In some states, that's roughly the same percentage as the sales tax!
4. You lose leverage with the merchant
If you have a problem with a credit card purchase and the merchant refuses to work with you, you can charge back the purchase with the credit card issuer. Simply the threat of doing this will give you substantial leverage with the merchant, because they risk losing their merchant account if it happens too often, and they will be charged large fees by their merchant processor if you follow through.
Most of the time, if you have a legitimate dispute, the bank will side with you over the merchant, and your purchase will be refunded (you won't have to make payments on the amount in dispute while the resolution process is underway).
5. You don't get an interest-free grace period
On most cards, if you're starting with a zero balance, you'll get up to a month before you need to pay a credit card balance off without incurring interest. That's an extra month that your money is available to earn interest in a high-yield savings account or otherwise work for you. Credit cards are a great way to help even out your expenses with your cash flow without paying any interest for the privilege.
Hopefully I've convinced you: Using your debit card to make purchases is an amateur move. Does it ever still make sense? Yes, it can. Some merchants (such as marijuana dispensaries) don't accept credit cards, but do accept cash and debit cards. In this case, you won't have much of a choice. You might also be offered a discount to use a debit card versus a credit card, such as at some gas stations. If you are willing to risk it, the savings might add up. And of course, you might need cash at some point, and make a small purchase with a debit card in order to get cash back.
Paying with a debit card should be the exception rather than the rule, though. A rare exception. Using a credit card is nearly always better.
- Read more:
- 10 of the best credit card offers in September, from 150,000 Hilton points to the best rewards card for beginners
- I have almost 30 credit cards, and there are 5 things I wish I'd known about points and miles when I was starting out
- Preferred vs Reserve: How the Chase Sapphire credit cards stack up
- See all our credit card reviews - from cash-back to travel rewards to business cards - in one place