Credit Card vs Debit Card: Which One Is Better?
Which one is better when it comes to credit card vs. debit card? Many people completely rely on their debit cards.
Even during the holiday season, they showed those infomercials about credit cards. In those ads, they basically demonized credit cards. They had these ads showing how dangerous credit cards are supposed to be.
The problem with such ads is, they don’t show the full story. They want to convince you, that using your credit card would be the worst idea ever. They show you people who maxed out all their credit cards and get in severe debt.
If you are a fan of Dan’s, we’re convinced you wouldn’t act that way. If you know how to use your credit card the right way, it actually has so many benefits.
That’s why today we want to share our opinion. Dan believes only idiots use debit cards.
If you look at it objectively, debit cards don’t have much going for them.
So when you ask us about credit card vs debit card, we say credit cards are much better. Let us share the reasons why below.
Credit Card Usage
According to statistics, in November 2019, 374 million open credit cards existed in the USA alone. 75,5% of the consumers had at least one credit card. So, three-quarters of the population like to rely on credit cards. They like the freedom of borrowing the money and paying it back later.
These are some interesting statistics. It shows how people keep using credit cards. Despite the ads that want to demonize them.
Wealthy people know how to use their credit cards right.
Leverage Other People’s Money
A great reason why you want to use a credit card is the following: You can leverage other people’s money.
There is a saying that cash is king. In business, you can survive a long time without making a profit, but you won’t survive a day without cash.
Why do companies run out of business? That’s right because they run out of cash.
Companies that stay in business, they know how to leverage other people’s money. Now, what does that look like?
When you are using a credit card, you are essentially borrowing money from the credit card company. So, you are leveraging their money for a short period of time.
If you use your debit card, however, that money is just gone from your bank account.
Maybe you are afraid of credit card debt? Let me tell you this:
When you are paying off your credit card balance every month, then there is no problem. You are leveraging other people’s money. It is a smart thing to do.
A lot of small companies who are just starting out are borrowing money from their credit card. It’s a great way to make that first initial investment to get the business going.
Or sometimes, it’s a great way to get your company across a rough time. Dan did that quite a few times. He did it because he knew he will earn that money back soon. He’s simply in a tight spot right now.
If you know your finances and manage them well, then you will never go into severe credit card debt. All you are doing is being smart and borrowing that money.
So that’s reason number one why credit card wins in the battle of credit card vs debit card.
Borrow Money For Free
Reason number two to use your credit card is that you can borrow money for FREE.
As we said, as long as you are paying off the balance every month there is no issue.
So many people are afraid of using credit cards because they think they will have to pay interest and get into credit card debt.
But it has nothing to do with the credit card. It only depends on how you manage your money. The question is if you have the self-discipline to pay off the credit every month.
A credit card is just a tool. Like a pencil. You can use a pencil to write a beautiful poem, or to write a song…or to stab someone – like John Wick. It depends on how you use it.
If you have the self-discipline to pay your credit card every month, then you have nothing to worry about. If you are worried about it because you are afraid you will forget – set a date in your calendar. Put it in your phone. It’s that simple.
Let’s imagine you are on a trip and you need a “Car2Go”. Maybe you don’t have that money now before the next paycheck. What do you do? You are in the middle of nowhere and you don’t have enough money in your bank account to use your debit card. This is exactly the moment you could use your credit card.
You take care of that, get your Car2Go and have a few weeks to solve the problem. The next paycheck comes and you can pay that off.
As long as you pay everything off and not just do the minimum payment, you are okay. There won’t be any interest or other fees. Really, the only fee for your credit card is paid annually, and it’s not very much.When you are doing it right, your credit card allows you to borrow money for free. Think about that. It would never be possible to get an interest free loan from a bank. But, your credit card can literally do that. Click To Tweet
You Build Up Your Credit Score
One of the most important things that most people forget about is your credit score.
Why is it important to build your perfect credit score?
Let’s imagine you have a family and want to buy a home. The bank will look at your credit score. Your credit score is your credibility. It shows your borrowing power. You need to build that up at a young age.
The thing is, your credit card is the perfect tool for that. So, if you have a credit card and pay it on time – not late!- you build up your perfect credit score.
The banks look at it and see that you are responsible. You pay off your credit regularly, which gives a good impression.
So one, or even more credit cards used wisely can greatly improve your score. A debit card can never do that.
If you are a business person and thinking of raising capital, borrowing money from a bank, getting a car – all of that depends on your credit score. Because the banks will look at that. That’s how you build credibility in North America.
It’s critical to do that and build your track record as soon as you can.
You Get Rewards
Another great reason why credit card vs debit card is clearly won by credit card? You actually get rewarded for using your credit card.
Now, there are many different credit card options out there. Many of them offer “cash back”.
What is that? Cash-back means if you spend a certain amount with your credit card you get a tiny amount back. So basically, you get paid to use your credit card.
If you use your card a lot, the sum you get back can accumulate. It’s a nice little side-effect of using your credit card.
Now you might wonder, why do the credit card companies do that? Simple. Because they want to encourage you to use their card.
Of course, most credit card companies count on you to make a mistake and pay interest. If you are a fan of Dan’s however, we believe you are smarter than them. You have the self-discipline to pay off your credit regularly.
So it’s risk-free and offers nice rewards for you.
There are also forms of credit cards where you get reward points or travel rewards. Those are all great rewards.
Especially if you have a company and therefore have multiple credit cards. If some of them give you travel reward points you accumulate a lot of those points with your company. You can utilize these points later for your traveling. Dan and his wife Jenny do that a lot.
So no matter if you are staying in a hotel, book a flight or buy a computer – you collect rewards. You wouldn’t get any of that if you used a debit card. So your credit card has all these perks that your debit cards don’t offer.
You Get Bonuses
Most credit card companies offer some kind of bonus when you open up an account with them. It’s very wise to use those bonuses. Maybe you want to have more than one credit card to get more bonuses? As long as you are very aware of your spending habits and pay back every month, there is no problem with that.
You Are Better Protected
Now, this recently happened. Dan got a call from his credit card company – from the fraud prevention department to be exact. They told him that somebody had used his credit card in another country – illegally.
So, they immediately deactivated that credit card and issued him a new one. Through that process, they also gave him his money back. Now that’s great fraud prevention.
Should you lose your card or even if somebody steals it, you are always protected. With your debit card, you don’t get that at all.
Maybe your debit card is somewhat protected. Still, if someone stole your debit card – and let’s assume they find out your pin number – when they withdraw some money that money is gone. It’s gone forever. Even if you can prove fraud, they can’t bring your money back.
A lot of credit cards also come with insurance protection. So when you travel and use that card you are insured.
With a credit card, however, if such a fraud happened, you can contact them and provide your evidence. You tell them those charges weren’t done by you but by a criminal. They would investigate and if your case is found to be true they give your money back. That’s pretty powerful.
So that’s another thing why we think in credit card vs debit card the credit card clearly wins. The credit card makes more sense.
Credit Cards Have Fewer FeesYour credit card might have a yearly fee. But, debit cards actually have a lot more hidden fees. Click To Tweet
Sometimes you pay per transaction. Or, if your debit card is overcharged, the banks charge a lot for that.
So, while a credit card allows you to borrow money, the debit card punishes you for that.
If you use your credit card often and get cash-back, the yearly fee might not be that bad. And you save on all that debit card fees.
What does that mean for credit card vs debit card? Another point for credit cards.
Protection on high ticket payments
Here is another one why you should use your credit card. They actually protect your payments.
What do we mean by that? If you buy a product or service that is somewhat more high-ticket (meaning the price is above 1,500$) your credit card protects you from getting scammed.
If for any reason the product or service is not up to standards you can contact your credit card company about this. They will actually withdraw the money from the other person until the issue is resolved. If it can’t be resolved any other way, you’ll get your money back.
So let’s say you are having someone over to repair things around your house. They work some hours and charge 3,000$. You pay with debit card and the repair service leaves. Only later, you found out they did a bad job, but your money is gone.
If you pay with credit card, however, you can file a complaint and get in contact with your credit card company. So, if the fraud is proven to be true, the credit card actually protects your payments. This is especially useful for purchases that are a bit more expensive.
Top Purchases For Credit Cards
We think all your purchases are best done with credit card. But let’s have a look at some examples that are especially great for credit cards.
Top purchases to make with your credit card:
- Any high-ticket purchases. Maybe you buy a new car or get the payment down for a new home. Or you invest in high-value coaching. Use your credit card for the big sums. You are protected, get more cash-back and bigger rewards.
- Hotels. For most hotel bookings you need to have a credit card anyway. No credit card, no reservation.
- Grocery shopping at the supermarket. Yes, you read that one correctly. Grocery shopping usually isn’t the most expensive purchase you make. But, many supermarkets endorse credit cards and you get great reward points or cash-back.
Another great reason why credit card vs debit card is won by credit card? Credit cards can be used for almost anything.
There are some payments that you could never do with a debit card. Booking a flight, for example, almost exclusively works via credit card.
If you travel to other countries only with debit card you also might run into problems. They might not accept your debit card or currency. That’s why for traveling you definitely want to have a credit card. You can use it almost all over the world.
The Only Reason Not To Use A Credit Card
There is really only one reason why you shouldn’t use your credit card. And that’s when you are absolutely sure you can’t pay back the credit after one month.
But, if you find yourself in such a situation, let me ask you one question. How did you even get there? You might have a completely different problem.
You have no idea how to handle your money as a wealthy person would.
As Dan likes to say, all your money problems are – at their core- skill problems. You don’t have the skill to manage your money well.
So, what you want to do first might be to learn some wealth management strategies.
If you want to become wealthy, you have to learn how to handle your money.
How To Manage Your Money Like A Millionaire
The wealthy know how to keep and expand their money. Using a credit card rather than debit cards is only one of their strategies.
Want to learn more wealth management strategies from high-income earners? Right now you can learn how the rich think about money. Dan Lok is debunking common money myths that might keep you from generating wealth.
Managing your money and the right money habits are skills that are more important than ever. With Dan’s insider secrets you can protect your money during hard times and make more as times get better. So, do you want to manage your money as the rich do? Discover the 2-hour training with Dan here.