Saturday, May 1, 2010

Monthly Money Tip – Credit or Debit – Which is Better?

So if you read my blog, you know that I am in favor of using credit cards for the perks IF you can pay your balance every month AND you are living below your means. Well I found an interesting article in the May 2010 issue of Money on situations where it might be better to use Credit instead of Debit:
1. You’re Planning to Make a Major Purchase – Credit Cards offer the strongest protection on purchase disputes. If goods or services aren’t delivered as stated, the issuer will battle with the merchant on your behalf. Until the problem is resolved, the charge is suspended with no interest accrues. With a debit card, the money is gone from your account and you have to wrestle with the merchant to get your money back.

2. You’re Buying Gas, Checking in at a Hotel, or Renting a Car – When you debit for those transactions, the merchant figures out the maximum you could spend, and then puts a hold on your bank account for that amount. You cannot access the excess that is frozen until the transaction is finalized which can take up to 48 hours. When checking into a hotel for 3 nights, the merchant may freeze $1000 dollars; however your total bill may only be $600.
3. You Want Big Rewards – Many debit cards now have rewards programs, but they no way compare to the best credit card programs available. Many credit cards offer at least 1% cash back on purchases. If you spend $65 per week at the grocery store, over the course of the year you will spend $3380, but could get $33.80 in cash back rewards.
4. You Don’t Vigilantly Monitor Your Account – If your credit card is stolen, your liability is $50 maximum by law. If your debit card is stolen and money is used, the money is gone and you’ll have to jump through hoops to get it back. In the meantime you could end up spending more by bouncing checks or miss bill payments. If you do not have time to regularly check your bank account activity, use a credit card that way it’s the bank’s money that’s on the line and not yours!

Source – Money, May 2010.

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