To cut or not to cut your plastic is something that you have to decide. If you are in credit card trouble or if you don’t keep track of your spending, then you should either put your credit cards away or cut them up. I am not an advocate of cutting up all of your credit cards and your ATM card, unless you do not know how to handle credit and debit cards. I realize that in the Condition of Your Flock, I stated that cutting up or putting away your plastic was one of the important things to do. It is an important thing to do if you do not know how to handle plastic.
Basically, if you have credit card debt and you keep rolling over your debt each month and/or you are only making minimum payments on your credit cards, then you need to STOP using plastic.
When you are struggling financially, credit is not your friend. Therefore, you need to set-up your Emergency Fund, make and use your Money Blueprint, use you Money Blueprint Binder and Money Blueprint envelopes.
Once you have these things in place and you start paying down your debt, then you can use plastic. I recommend having only one credit card and yours and your spouse’s ATM/Debit card. Use the credit card only if you are able to pay it off at the end of the month and it’s budgeted in your Money Blueprint. YOU WILL NOT CARRY A BALANCE ON YOUR CREDIT CARD. Use your ATM/Debit cards only if you have budgeted for those expenses in your Money Blueprint and you write down the expense on your Money Blueprint Binder.
There are regulations and policies that protect you if your credit cards and debit cards are lost, stolen or used by an unauthorized person. However, the level of protection differs for each card. If your credit card is lost or stolen and you notify your card company before charges have posted to your account you are not responsible for any unauthorized charges. If charges have already posted, you will only be responsible for the first $50 of charges.
While debit cards offer this protection as well, you must notify your card issuer within two days of discovering unauthorized charges or the loss of your card. This limits your liability to $50. However, if you don’t notice the transaction within two days and then report the charge between two and 60 days your liability increases to $500. After 60 days, your liability could be limitless. In the meantime, you are out that cash and even if you are credited the amount in the future, don’t expect the credit to appear in a timely manner.
Additionally, Visa and MasterCard offer zero-liability policies for credit cardholders. This means that you are not responsible for any charges made when your credit card is not present. It covers online purchases or instances where credit card numbers are entered manually versus swiping the physical card at the merchant location. The zero-liability policies for debit cardholders, applies only to transactions that do not require the use of your PIN.
If you don’t balance your checkbook, using your debit card puts you at a greater risk of overdrawing your account. With a credit card, you eliminate this risk. However, you must be sure that what you have charged is included in your Money Blueprint. With your debit card, be aware that transactions that require a signature generally take up to three days to clear. Whereas, PIN transactions can clear immediately or within 24 hours. Although, credit card purchases generally do not post to your account immediately, an authorization to hold funds does take place. Therefore, if you are close to approaching your credit limit using your card on several occasions in a short period of time may result in going over your credit limit. This results additional fees and higher interest rates being applied to your balance.
So, which is better – credit or debit? Both provide convenience and ease of use. They both have benefits, the key is to use them responsibly. Therefore, the best way to manage your personal finances does not start with how you pay for your purchases, rather with your spending habits themselves. If you stick to your Money Blueprint, live within or below your means, then both options should serve your purchasing needs sufficiently.