Even More Debit and Credit Card Confusion

Time to circle back and discuss the cards, credit and debit, again.

If you are just joining us, I will recap. Debit card transactions now outnumberC Cards 2 (Andres Rueda) credit card transactions in America. Frank doesn’t get it. He has used a debit card maybe three or four times in his life. Although he can imagine several special cases in which a debit card would be preferable to a credit card for a person, he can’t wrap his head around the idea that the majority of people fall into those categories.

Wise Bread today ran a feature comparison of credit versus debit cards. Debit cards did not fare well in the head-to-head, besting credit only on the “Which is better for avoiding credit card debt?” criterion.

This, by far, is the strongest argument in favor of the debit card. If it helps you control your spending and helps you avoid credit card debt, then that one feature alone is as precious as gold. If you currently have credit card debt or are trying to get out of credit card debt, then cutting up the credit card and using a debt card is probably one of the smartest decisions you can make.

Actually, it is more than just the strongest argument in favor of debit, it is nearly the only one. And it is impossible to refute. If carrying a debit card helps you control your spending, then it makes sense. But the same can be said of lining your hat with tin foil. If it makes you feel better, then go right ahead. Nobody else needs to know.

I guess my confusion starts with not understanding why a person would find using a debit card to be a useful psychological crutch. To begin with, I am not sure that the fundamental premise, that a debit card limits you to spending the cash you actually have, is necessarily true. I see a lot of buzz about overdrafts out there.

Moreover, it seems to me that limiting yourself to spending every penny you have is not the best place to draw the line. It is like saying that sure, you snort a lot of cocaine, but you would never smoke crack.

Can it simply be that people, and apparently this is the majority of people, are a little more reluctant to spend “their” money out of the checking account than they are to incur a charge they will be billed for in a few weeks? Are we really that childish?

Yeah, I think so.

One of the several ways in which credit cards are clearly more useful than debit is in renting a car. I have to admit that I have been listing this as plus for credit without really thinking about it. Then the other day The Consumerist ran Why Won’t Rental Car Companies Let Me Use My Debit Card?

It is actually a good question, come to think of it. The post gives an inadequate answer.

Since you’re borrowing a car that likely costs several thousand dollars and the rental company doesn’t know you from the next person, the credit card is a guarantee of sorts that they’ll be getting paid no matter when — or in what condition — you return the vehicle.

Meanwhile, a debit card doesn’t offer the company the same protections, as it’s limited to whatever cash is in the associated account. So if they do take your card, you might have to jump through some expensive hoops.

Yes, but there is a spending limit on the credit card. It is not like they can just put the whole cost of replacing the car on your Visa if you never bring it back. (And I do hope it is more than “several thousand dollars.”) I presume that the rental companies have some way of checking that there is enough credit left on your card to pay for the rental and maybe a few extra charges, but it is hard to imagine that they think of a credit card as a blanket guarantee.

There is some finite number of dollars that the rental company can charge to your credit card, just as there is with your debit card. The rental company, I assume, can ascertain the amounts of both and, I believe, put a hold on an appropriate portion in both cases to make sure they will get paid. So why do they shun debit cards?

It is possible that this is ultimately no more profound than that they have not built up the systems and procedures necessary to take debit. With the vast majority of their customers being credit card wielding business travelers, they do not have a great incentive to bother. Or could it be that they are just more comfortable renting to somebody who carries proof that at least one bank thinks he is creditworthy?

My confusion continues.

(For the benefit of those who do not read The Consumerist regularly, you might want to check out this amusing pie chart. Also, I am apparently in grave danger.)

[Photo – Andres Rueda]

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