Ditch Your Debit Card and Get Paid to Spend Your Money!

If someone offered to compensate you for spending money would you accept? Of course you would. You are going to spend your money one way or another, so might as well get paid for it right?

The crazy thing is that this deal DOES exist and many of us are NOT taking full advantage of it. What is this mythical deal that I keep referring too?:

Credit Cards.

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Yes your read that correctly. Those giant evil banking corporations that let you borrow their money and then charge you astronomical interest rates when you can’t pay them back in time. Most people avoid credit cards for this very reason. They fear their lack of self-control will lead them to spending more than they can afford.

So instead, they opt for a debit card. This prevents from them from taking on credit card debt, which is good. However, this also prevents them from reaping the added benefits that credit cards offer.

This article will settle the credit vs debit debate once and for all:


Debit Cards and Credit Cards: Whats the Difference?

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Avoiding Credit Card Debt

When you purchase something on a credit card you are technically using the banks money. In other words, the bank spots you the money and then expects you to pay it back at the end of the month. When you cannot pay your credit card balance, the bank penalizes you via late fees and ridiculous interest rates.

Plain and simple, if you are going to use a credit card, you need to avoid credit card debt at all costs.


Why Credit Cards are Superior to Debit Cards

Credit cards require more discipline, but if used responsibly, they provide several benefits that debit card simply cannot compete with:

1. Rewards/Cash Back Programs

Remember that magical deal where you get paid to spend money? Well this is it.

Cash Back

Many credit cards will give you“cash back” on certain purchases. For example, your card may offer 3% cash back on groceries. So, if you buy $100 worth of groceries on your credit card, then you will be paid $3.

Reward Points

Other cards will give you “points” for each dollar you spend. So, that $100 grocery purchase will earn you 100 points. On the credit card company’s website, you can redeem these “points” and use them to buy a wide variety of things: flights, hotels, shows, gift cards, prepaid Visa cards, cash, etc.

 Why Do These Programs Exist?

Credit card companies want you to spend money on their card, so they provide incentives to do so. Every time you make a purchase, the merchant must pay a fee to the credit card company. So the more credit card purchases you make, the more fees they earn. Additionally, credit card companies make a killing off late fees and interest payments when you are unable to fully pay off your balance.

2. Credit Card Perks

Credit Card companies incentivize you to spend via their cash back and reward programs. They also incentivize you to choose their card. There are hundreds of different credit cards out there. With so much competition, credit card companies need to find a way to differentiate themselves. This is done via their terms/conditions, rewards program and perks.

Perks are essentially benefits and services that you are entitled to simply because you have a certain credit card.  For example, most credit cards will offer rental car collision insurance for bookings that were done on their card. A credit card company offering car insurance? Seems a bit odd right?

This just goes to show you how important gaining and retaining customers is for these companies. So take full advantage of it. Some other examples of credit card perks include: free airport lounge access, travel insurance and VIP access to events/experiences.

Want to find out which credit card offers the best rewards and perks for your situation? Use this online tool from Nerdwallet to get a personalized suggestion!

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Airline Lounge access will forever change your relationship with airports 

3. Build Credit History

Your Credit History is essentially a paper trail of all the times you borrowed money. When a lender looks at your Credit History, they can get a pretty good idea of how trustworthy you are. It will be harder (and more expensive) to convince people to lend you money without evidence that you will actually pay them back. Using and paying off your credit card on time is an excellent way to build your Credit History and prove that you can be trusted.

4. Better Fraud Protection

When it comes to fraud, credit cards provide greater security for your hard-earned dollars. With debit cards, money is removed from your bank account as soon as the transaction is completed. So if someone uses your debit card number to buy $5000 worth of electronics in Shanghai, then your bank account will suddenly be $5000 smaller. You are responsible for noticing and reporting the fraud. If you do not report that your debit card has been stolen within 60 days of the fraudulent activity, then your bank is not required to refund the money.

With credit cards you have a teammate looking out for you. Remember you are not spending your own money, you are spending the credit card company’s money. So when that $5000 purchase in Shanghai occurs, the credit card company will be curious. They will likely contact you to confirm that you made this odd purchase. Once you inform them that you were not buying electronics in Shanghai, they will remove the charge from your credit card balance.  

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Even though you are poor, you are still a prime candidate for financial fraud

Which Cards Do I Need in my Wallet and Why?

Don’t chop that debit card up just yet. While credit cards are great for daily spending, they still lack certain features that you will need in your everyday life. Debit cards will help fill this void.

With personal finance, simplicity is often superior. The same holds true for your wallet. Everyone’s situation is unique and different, but if you are single and have no dependents, then you really only need 3 cards:

1. Debit Card

This will primarily be used when you need to get cash out of an ATM. Remember debit cards pull directly from your bank account and therefore enable you to withdraw cash. Generally speaking, credit cards do not allow you to freely pull cash from an ATM.

2. Daily Credit Card

Find a card that offers reward programs/perks that are most in line with your spending/lifestyle. For example, if you eat out at restaurants often, then you may opt for a card that offers triple points for dining purchases. Make this card your primary form of payment and take full advantage of the benefits/rewards your credit card offers.

3. Backup Credit Card

If your “Daily Credit Card” is being declined for some reason, then it is good to have a backup. This card is for emergencies only. This card is NOT for increasing the amount of money you can spend. If you find yourself maxing out the credit limit on your daily credit card, then you should ask for a credit limit increase or reduce your spending. As mentioned above, personal finance is best kept simple. Having multiple credit cards can really muddy your finances and make them harder to keep track of. You really don’t want to run into a situation where you forget about a balance on one of your cards. This will result in hefty interest payments and will be detrimental to your Credit History.

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