You’re at the store and in the checkout line to pay for your items. The cashier says, “Debit or Credit?”
“Debit,” you answer.
It seems like an innocuous answer — one that doesn’t require much further thought. But your method of payment is more important than you think.
Using a debit card can be a great way to avoid credit card debt, but a debit card offers less protection and does not help you build your credit. Yet many Millennials are saying no to credit cards, opting for debit cards instead.
But is using a debit card for all your purchases a good idea? Not necessarily. Using only one payment method could potentially put you at risk.
The Rise of the Debit Card
Millennials grew up at a time when they experienced firsthand the ramifications of the Great Recession. Dealing with high unemployment and enormous debt loads and seeing their parents’ retirement portfolios tank, it’s no wonder that Millennials have a different relationship with money than earlier generations.
Debit cards seem like a safe alternative, while credit cards might seem like a gateway to more debt.
According to a survey by Bankrate and Princeton Survey Research Associates International, a staggering 63 percent of Millennials age 18-29 do not have a credit card. That’s a huge percentage of Millennials who are simply saying no to credit cards.
Aside from economic influences, there has also been some legislation that has made it more difficult for younger adults to get approved for a credit card.
Under the Credit CARD Act of 2009, credit card issuers are unable to issue a credit card to anyone under 21 years of age unless they have an adult co-signer or provide proof of income that is sufficient for repayment.
With this, the popularity of debit cards, which do a lot of the same things credit cards do, took off. But even though using debit cards and credit cards seems similar, there’s more to the conversation.
Problems of Using Only a Debit Card
Debit cards are an attractive option as they offer the same convenience as a credit card, without the potential of getting into debt. However, only using a debit card for all your purchases can be potentially risky because:
- Debit cards offer less fraud protection. According to an article on CNN, “Under federal law, your personal liability for fraudulent charges on a credit card can’t exceed $50. But if a fraudster uses your debit card, you could be liable for $500 or more, depending on how quickly you report it.” More info on that from the FTC here.
- Using a debit card does not help build credit. Building credit is an important part of your financial life. Your credit score can determine whether you get approved for an apartment, a mortgage, or a car loan.
- In cases of theft, fraud, etc. your bank account could be wiped clean. Since your debit card is connected to your bank account, criminals could quickly access your cash. It may take much longer to recoup your money after debit card fraud or theft.
- No rewards. Using a debit card often doesn’t offer any rewards. Though credit card rewards can be a slippery slope that encourages you to spend, if careful, you could rack up cash back and free travel simply by using a credit card on your basic expenses like groceries and gas.
As you can see, only using a debit card can be a bit risky, especially if your debit card gets into the wrong hands.
Should You Get a Credit Card?
I have to admit that I used to fit the bill for the quintessential cardless Millennial. For most of my adult life, I relied solely on my debit card. It wasn’t until the age of 28 that I got my first credit card. I ended up getting my first credit card for four reasons:
- A year before I got my card, I was the victim of identity theft. Nearly $500 was deducted from my checking account. As soon as I noticed, I called my bank. Luckily, they did recoup the lost funds, but my debit card was frozen and I had to wait a week to get issued a new one. It was tough not having access to either a debit or credit card for a week.
- I wanted to improve my credit to ensure I wouldn’t need a co-signer for rental applications or refinancing.
- I wanted to travel on the cheap. “Travel hacking” would give me a way of quickly accruing airline miles through credit card sign-up bonuses. (Note: this is more of an advanced strategy. You might want to hold off on this if you’re just getting started with credit cards.)
- I knew that I’d pay off my balance in full every month.
For a long time I got by just fine with a debit card — I made travel reservations, and was even approved for my first apartment without having a credit card (though I built some credit through my student loan repayment and my score was 720).
It is possible to live a life without a credit card — though it may be more difficult. Rental companies, mortgage lenders, and auto dealers all have their own credit requirements.
If you have no to low credit, you may not be approved for certain things or you may be hit with higher interest rates.
Because your credit score is what lenders use to assess your risk as a borrower, so if you have nothing to show for it, they will charge a higher interest rate.
So, should you get a credit card and stop using a debit card for all your purchases? Well, that’s up to you. It’s a good idea in general to help build credit and protect yourself against fraud. To help answer the question, think about your future goals while considering how you think you’d handle the responsibility that comes with credit cards.
Do you want to own a home one day? Travel for free? Get an affordable rate for an auto loan? If so, getting a credit card could be helpful.
If you choose not to opt in and build credit through a credit card, you’ll likely need to save a larger amount of money for bigger ticket items or be prepared to receive a higher interest rate. You can build some credit through paying your rent, utilities, and student loans on time.
Ultimately, it’s up to you, but it’s key to weigh the pros and cons and fully understand the consequences of your decision.
Do you have a credit card, or do you exclusively use a debit card?
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|