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Time to swap debit for credit?

By Janna Herron · Bankrate.com
Monday, October 10, 2011
Posted: 12 pm ET

So no one likes these new debit card fees that are in the offing. Does that mean it's time to put purchases on your credit card instead?

Before answering that question, let's back up to the beginning. Bank of America said last week it's going to charge a $5 fee every month you use your debit card starting next year. In the meantime, Wells Fargo and Chase already are testing out a $3 debit usage fee in certain areas.

Why the big change? In short, new regulations limit how much a bank can charge a retailer for accepting debit cards for purchases. Before, this was a cash cow for banks. Now? Not so much. And as the CEO of BofA reminded us on Thursday: Banks have a right to make a profit. So say hello to these new fees.

There also are whispers out there that banks are secretly hoping that by charging you a debit card fee, you'll pull out your credit card you have with them instead. (Because there are no restrictions on the fees banks can charge retailers for taking credit cards. And that means more money.)

The question is: Should you? If you use your debit card to stick within your means, it may be best to pay cash instead and only use your debit card when absolutely necessary. But if you can keep your spending under control, maybe dusting off the credit cards for everyday purchases isn't a bad idea.

Linda Sherry, director of national priorities at Consumer Action, suggests designating one credit card for incidentals that you pay off in full every month and on time. You'd otherwise end up paying interest, which could cost even more than that pesky debit fee you were trying to avoid in the first place.

Keep another card for emergencies, she recommends, for large unexpected expenses such as a car repair or a huge dental bill.

"Try to pay off a balance in two to four installments (do not pay only the minimum), and pay it off before adding any more transactions to the card," Sherry advises.

As an alternative, she recommends searching for a card, like Chase Blueprint, that allows you to pay off the smaller incidentals in full each month with no interest, while keeping a balance for a larger purchase.

"If possible, try to get something back from your incidentals card, such as mileage or rewards," Sherry adds.

Will you use your credit card more to avoid debit fees? I'd love to hear your plans.

Follow me on Twitter: @JannaHerron

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10 Comments
thenagain
October 20, 2011 at 9:26 pm

Switch to a credit union. Never pay a fee for anything. Credit unions provide the same services (debit, credit cards, checking, etc) for Free! Almost everyone should be eligible to join. Check it out. You will be glad that you did.

Andrew
October 20, 2011 at 10:22 am

I completely agree with Larry. I have two credit cards I use for almost everything. I exploit the cards for points, using the specific benefits of each card as appropriate, and then pay everything off in full each month. Over the last few days, a lot of people in my neighborhood have become the victims of a card skimmer and have had their debit card numbers used for fraudulent transactions several hundred miles away, immediately wiping out their checking accounts and creating a huge hassle. Use a credit card and pay it off people! I welcome someone to try and steal my credit card numbers. If the fraud was not immediately caught by the fraud prevention systems of my CC company, I'm a phone call, 10 minutes, and some minor paper work away from a new card and no more problems.

I'm in my mid-20's and have a respect for saving and budgeting thanks to my parents. Unfortunately, so many of the Baby Boom generation, Gen X, Gen Y, etc. have no knowledge or respect for the lessons of the Great Depression. Fortunately for them, that will change as we are in the midst of the Great Recession, especially since it will probably get worse before things improve. Live within your means and make wise financial decisions.

Larry
October 20, 2011 at 9:08 am

First answer...it is not YOUR debit card. It belongs to the bank. And like other people have said, if government would stay out of it, you'd all be better off. First of all, if people would just use some common sense (or develop some), they would be so much better off. For years and years now (I don't know why you have to be told this via an article instead of figuring it out on your own), I use one credit card for almost all purchases including auto payments for utilities, etc. and pay it in full at the end of the month. I am using THEIR money at NO cost to me (as long as some genius doesn't get the government involved and cause the credit card companies to do away with the 30 day grace period). I REFUSE to carry a 'debit' card. It doesn't matter whether you swipe it as a 'credit' card or a 'debit' card, it still comes out of your account instantly. If you over use it beyond what you have in your checking account, then as far as I'm concerned you just wrote a hot check with insufficient funds. I DO carry an ATM card as convenience for occasional cash. I refuse the debit card option because of the fact that it can be swiped 'as a credit card' but still comes directly out of your bank account. If the wrong person gets ahold of that card and starts 'charging', they can wipe out your bank account and cause all kind of long term problems. I have plenty of other 'credit cards', but the only thing I occasionally might ever use them for is for really good promotions for free interest money. I don't use them for ANY everyday charges.

sheabee
October 11, 2011 at 12:11 pm

why can't you just run your debit card as credit instead? i do it all the time. i wonder if that makes a difference since the merchant's transaction rings differently.

Ash
October 11, 2011 at 5:50 am

Janna's article was very good to point out that credit cards coupled with rewards for miles or cash back are a great alternative to debit cards with fees. But consumers can still turn to smaller banks and credit unions, who weren't affected by the 'swipe fee' legislation and therefore still offer free and/or rewards checking accounts with fee-free debit cards.

Ash
October 11, 2011 at 5:40 am

Let's all thank Senator Durbin and his allies in Congress for our new fees. The government needs to stop tinkering! These new debit card fees, and the move to incentivize consumers to use credit cards instead (which were not impacted by the 'swipe fee' legislation), are natural reactions by the banks. Yes, banks are businesses that have a right to make a profit. And our leaders (who are supposed to oversee a free, capitalistic society) shouldn't be telling businesses in a free market how much profit is too much.

Bobbi
October 11, 2011 at 4:53 am

What next? A fee if you do not use your debit card?

Martin
October 10, 2011 at 7:11 pm

I keep hearing about banks going to start charging fees for debit card use. FYI Regions Bank already is. $4.00 a month if you use it just once.

vps
October 10, 2011 at 6:15 pm

I am most definitely going to stop using by debit card once this $5 change gets in place. I hardly use it for purchases anyway. Now I wont use it at all. I've mostly used my credit card for purchases, trying to rake in those cash back rewards.