"Credit or debit?" It's a question most of us get asked a few times a week. But what's the answer? I typically say "credit," simply because it seemed to me that stores always try to steer me into using debit instead of credit, and I was suspicious. When I shop at Target for instance, I have to push "cancel" after swiping my card through the reader in order to pay using credit instead of the default debit form of payment. Other stores don't even give me the option to use credit, allowing only debit charges. In my suspicious mind, that meant that using credit was better for me. But if it was better, I had no idea why.
Yesterday, the New York Times ran an article on this very subject. Titled "How Visa, Using Card Fees, Dominates a Market," it explains what goes on behind the scenes of a card transaction. It turns out that stores pay over twice as much for credit transactions (75 cents per $100 spent) than debit transactions. What this means, of course, is that stores must raise their prices to cover the added costs of being able to accept credit card transactions. And all customers — whether they use cash, credit, or debit — must pay the same price. The ones who really win when people use credit, rather than debit, are the banks and VISA (which handles 40 billion transactions a year), because they collect those fees.
Does that mean you should pay via debit to keep store costs down? Well, maybe. But if you have a credit card that offers frequent flier miles or some other kind of incentive, it makes sense to use a credit card, as part of those VISA fees are returned to you. Those cash and debit suckers are helping to pay for your vacation!
Mark Frauenfelder Credit.com contributor, editor-in-chief of MAKE magazine and the founder of the popular site Boing Boing, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online. He covers creative DIY projects and how-tos that will help you make the most of your money.
{ 1 comment… add a comment }
When using a DEBIT CARD — ALWAYS say creidt. One thing most people don’t think about — is this:
You say debit & type in your card number. The money is taken out automatically & quickly. If you say CREDIT, it is nomally out in 24 hours or less. The difference is because you said CREDIT — they do not have your PIN # (normally 4-6 numbers) Max. Without that pin number, you are safter. It’s like giving someone your Social Security Number over the phone, WHO YOU DO NOT KNOW. What happens? Identify Theft! KEEP ALL YOUR IMPORTANT INFO TO YOURSELF & FAMILY.