Debit Cards? Put Those Things Away!

Once you become a fanatic about points and miles, word gets out quickly.  I have had numerous conversations with people who are looking for advice on what the best cards are for them.  I love these conversations.  Why?  Because I can steer someone toward a free trip in the near future. Today’s topic: why using debit cards is a sure-fire way to NOT get cash back or free travel

The logical first question I ask is “what card do you use now?”  The number of different responses to this question are numerous, but only one breaks my heart.

“We use our debit card to pay for everything.”

It hurts me just to type that sentence.  

Is this the best type of card to use? I don’t think so.

Now, let me play fair here.  I get it.  Using debit cards means you instantly pay for the good/service because the money is immediately taken from your checking/savings account.  Who doesn’t love fiscal responsibility?  But let’s let look at both sides of the coin, a.k.a. the pros and cons of using a debit card.

THE GOOD AND THE BAD

Pros:
The obvious pro of using a debit card is the “instant withdrawal” aspect we already described.  No need to go to your bank’s online bill pay to make a payment.  You’re already done.  If there are other pros, I honestly do not know what they are.

Cons:
The single biggest con to me is opportunity cost.  If you used the Citi Double Cash, then you will earn 2% cash back on everything you buy.  Debit cards simply do not earn any cash back.  If you normally spend $25,000 a year on your debit card, you can earn $500 back with the Double Cash.  That’s $500 you would not have earned with your debit card.  Just pay it each month (or more frequently if you want to have a more accurate understanding of your bank account’s true standing), and you made some easy money.

If you replace your debit card with this card, you will get cash back, along with some other perks. And it’s a no annual fee card.


VULNERABILITY

Next is the issue of protection.  Now, we have probably all heard someone say “if someone gets your debit card and PIN, they can drain your bank account and there is nothing you can do about it.  Folks, if that were true, why would anyone have a debit card?  The truth is that while you are more vulnerable with a debit card than a credit card, it’s not as simple as “with a credit card you get everything back and a debit card you get nothing back.”  The truth is somewhere in between.  Here is a great article from the FTC to explain the differences in your liability.  Credit cards are unquestionably better in this area, but I won’t cast debit cards to be the bankruptcy risk people make them out to be.

The final con for debit cards is that you don’t any of the numerous perks that credit cards offer.  These include extended warranties, price protection, purchase protection, trip cancellation coverage, and so many others.  While some of these benefits require cards with annual fees, the Double Cash does not.  And it offers Price Rewind (you can register an item you bought and Citi will watch it for a lower price) and Extended Warranties up to two additional years.

So, what do you think?  Do debit cards still have a place in your wallet?

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