Holiday Spending

Online shopping: Debit or credit?

| December 5, 2012

For military servicemembers, online shopping may be the only way to shop for – and ship to – your family members when you can’t be with them in person, which means you’ll probably be relying on a credit or debit card for most of your purchases this year. It’s important to know the difference between the two forms of payment and to consider all of your options before making a purchase.

Debit cards are a direct link to your bank account. When you swipe your card, or submit your payment online, the funds are withdrawn immediately. Credit cards are more like a line of credit from the organization or bank that issued the card to you. It’s essentially a loan that you pay back later.

With that in mind, here are some pros and cons to consider when using a credit or debit card online during this holiday shopping season.

Debit Cards

Pro – It’s just like using cash. You pay up front and all of your purchases are interest-free.

Con – Spending is limited to the amount of money you have in your account/budget. No buying now and paying later.

Pro – You won’t incur any debt. Depending on your circumstances, and ability to pay your credit card bills on a monthly basis, using your debit card can help you to stay within your budget and not overspend.

Con – If you do go over your limit on your debit card, you can be assessed overdraft fees, which are a real drain on your bank account.

Pro – Convenience, convenience, convenience. Having your debit card on you is just like having cash in your pocket.

Con – Both debit and credit cards are susceptible to fraud, but with a debit card, the money comes out of your bank account. With a credit card you lose some credit availability that doesn’t directly compromise your cash flow. Since your debit card is the same as cash, you have to protect it like it’s cash. In either case, if your card does get lost or stolen, report it immediately.

Credit Cards

Pro – You have more flexibility. There’s a great deal on video games for your son, but you don’t get paid until Friday? No problem. Put it on your credit card and pay it off on payday. Or for large purchases, you have the flexibility to pay off the entire balance in three monthly installments that you have budgeted for.

Con – If you only pay the minimum payment you will extend the amount of time it takes to pay off the debt, and you will pay more in interest. In some cases LOTS more.

Pro – Credit cards provide protection against access to personal funds.

Con – Debt. Credit cards can be a lifesaver at times, but if you are not a good money manager, they can lead you down a path to mountains of
debt.

Pro – Responsibly using a credit card can positively impact your credit score. And if your credit card offers some sort of rewards program, you can pile up points for travel or other purchases by using it more often. But this makes sense only if you can afford to consistently pay off your balance each month!

Con – The opposite is certainly true: not paying your credit card bills on time negatively impacts your credit score.

Whether using debit or credit cards, remember that you are spending real money. By planning ahead and working within what you’ve budgeted, you’ll have a merrier shopping experience before and after the holiday.


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