BUSINESS

  personal wealth health

Using Debit Cards

How much are you really paying for this convenience?

WILLIAM J. LYNOTT

For decades, using a credit card was a simple transaction: the retailer accepted your card for payment, and you received a bill from the credit card company. The retailer got his money right away, and you had up to 30 days to pay for your purchase — a win-win situation.

However, that all changed when the credit card companies figured out a profitable way (profitable for them, not you) to put a stop to all those free loans. They named it the debit card.

Debit or credit?

Today, when you swipe your card, a new question pops up: “Credit or Debit?” That harmless-appearing question was at the heart of a dragged-out class-action lawsuit brought by major retailers against the leading credit card companies some years ago.

There’s a very big difference between credit and debit cards. When you use a debit card, there’s no free loan. Every time you make a purchase, the money is immediately deducted from your checking account. So why would anyone want to switch to a debit card? In a word, convenience. When you use a debit card, you don’t have to write a check.

One thing is for sure: if you’re using a hybrid card, such as a bank-issued Visa Check Card, which can be used for either “credit” or “debit” transactions, you’re not getting “credit” in the old credit card sense. If you choose “debit,” you’ll get an “online” transaction, which is likely to cost the merchant less (and an immediate deduction from your bank account). If you answer “credit,” you’ll get the usual signature transaction, which likely costs the merchant more.

Sounds complicated, and it is. And to make matters even more complicated, banks are increasingly imposing so-called transaction fees for using MAC and other online systems. This, critics say, is intended to steer debit cardholders away from ATM machines and into offline debit card use.

Smart buying

There’s little to nothing that you or I can do to influence this untidy situation. Still, it helps to underscore what I’ve been saying all along: Stay away from debit cards. The “convenience” of not having to write a check to the credit card company at the end of the month is more than offset by your inability to take advantage of the “float” of credit cards.

The smart way to use credit these days is to pay with a regular credit card, and then be sure to pay the bill in full when it arrives. That way, you’ve taken out a short-term loan at no interest to make your purchases, which will help boost your credit score and make it easier to secure a long-term loan in the future.

So, the choice is up to you. Use credit wisely, or pay the higher cost of using it foolishly. OM

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

MR. LYNOTT IS A FREELANCE WRITER WHO SPECIALIZES IN BUSINESS MANAGEMENT AS WELL AS PERSONAL AND BUSINESS FINANCE. VISIT WWW.BLYNOTT.COM, OR SEND COMMENTS TO OPTOMETRICMANAGEMENT@GMAIL.COM.