I love credit cards, but I despise debit cards.

Debit cards were created to take advantage of customers that are unable or unwilling to use credit cards. Whereas credit cards offer a short-term source for a cash loan without the hassle of having to qualify, debit cards draw down on existing assets, limiting growth. Paying for things today is always worse than paying for things later at the same price, as money devalues over time (inflation eats away at the value of the dollar). Credit cards allow consumers to delay their payment for up to one month. That is one additional month of interest that you do not get with debit cards.

Proponents of debit cards say that they never need to worry about spending more money than they have. This is ridiculous; the money is taken instantly out of your checking account. If you overdraft there is a fee. If you pay for overdraft protection, there is a fee.

There are more fees associated with debit cards than credit cards. Besides overdraft costs, debit cards typically charge a fee to the cardholder every time they have to enter their PIN for a transaction. Sometimes this fee is 25 cents per transaction, sometimes it is $1 to $2 dollars per month. Either way, there is an additional cost to using debit cards.



Other costs are more innocuous. The buyer has less protection with debit card. If the card is lost or stolen and money is withdrawn or used for purchase, the cardholder does not get their money back until the dispute is resolved. The credit-card holder is never missing any assets, even when the charges are in dispute. Further, credit card liability is only $50 by law; the same protection is not extended to debit cards. In fact, your debit card liability could be $500 up to the full amount of the liability, if you notify the bank more than 48 hours after you learn of the problem or even up to all the money in your checking account plus your maximum overdraft line of credit if you fail to notify the bank within 60 days. It depends on the bank.

There is also an opportunity cost: Rewards programs are generally lackluster for debit cards relative to credit cards. Dow Jones publication SmartMoney agrees.

Finally, there can be major problems with using a debit card to do things like hold a hotel room. Merchants may put a hold on the money, making it unavailable to the cardholder until the hold is cleared.

In summary, use credit cards whenever possible and control your spending. Never spend more money than you have.