Why You Should Never Pay With Your Debit Card

Why You Should (Almost) Never Pay With Your Debit Card

First things first, this is more an opinion piece more than anything but I will support it with my reasons. I also posted something similar to this topic a while ago so you can consider this a reminder/refresher.

For those of you that have been reading this blog for long enough, you’ve probably read it for long enough to know that I am a big fan of Credit Cards and Credit Card with rewards points in particular.

The way I see it is any opportunity you have to pay by card, you should take it, and the card you use should be either:

  • A card that provides you with rewards points and/or
  • A card that waives international transaction fees (where applicable – i.e. only for non-AUD transactions) and/or
  • A card that offers you an additional benefit in the form of an insurance

This means if you ever find yourself paying by Debit Card, this is a missed opportunity (to earn points, i.e. some “return” on your expenditure).

There are some exceptions to this, but they are very specific situations. An example is making payments at a merchant that surchages any credit transaction but not “savings” transactions. The most high profile place I can think of that currently does this is Aldi (Supermarket). Aldi surcharge any credit transaction at 0.5% of the transaction cost. When you also consider the nature of the goods that you’d often be purchasing from Aldi, they often wouldn’t be items that the additional Credit Card insurances would be useful for.

I’ve focused on the earning points aspect of Credit Cards in the post I linked to above, so I’ll discuss some other reasons as to why you should always pay for things with a Credit Card below.

You should always use a Credit Card to pay because…

  • You can earn Credit Card Rewards Points, or “free money”
  • You get cashflow benefits – this refers to the “55 interest free days” most Credit Cards offer you, whereby you can take advantage of this period in full and let the money sit in your bank account earning you interest or offseting a mortgage for a longer of time.
  • [Opinion] It makes chargebacks easier. From the financial institution’s point of view, it is their money at stake (unlike a debit account – that’s your own money!)
  • Credit Cards often offer you a way to categorise your spend, which can be considered a “lazy” form of budgeting.
  • Some Credit Cards offer..
    • Refund Guarantees – if the original merchant does not accept a refund, your Credit Card may effectively “buy” the item from you
    • Extended Manufacturer’s Warranty – your 2 year Dyson Australia warranty could be extended to 3 years
    • Domestic and/or International Travel Insurance – don’t worry about buying standalone insurance
    • Car Hire Excess Insurance – if you get into an accident and do not purchase excess reduction, you are often expected to pay an excess of $3000+ regardless of who is at fault. This feature means you won’t be out of pocket for this amount.
    • Price Protection – if your Samsung Galaxy Note 8 drops from $1300 to $800 within 2 years, you could claim the price difference

Of course, some Credit Cards offer some other features such as lounge access, free flights, and Platinum Hotel or Frequent Flyer status, but the features I’ve specifically pointed out above require the actual purchase of the item/service to have been made on the card. I’m not writing an exhaustive list of all possible Credit Card features!

There are a limited number of debit cards that offer some of the features above, but these features are generally a lot easier to find on Credit Cards.

These benefits should always be considered as part of the annual fee charged by a Credit Card. To be fair, the majority of these features are often not found on cheaper Credit Cards, but there are definitely some Credit Cards that offer great value and offer many of the features above.

The two I would like to call out are the American Express Explorer Credit Card and Coles Credit Cards.

It’s fast approaching holiday season, so it’s a great time to be using those Credit Cards to book your flights and get Travel Insurance and Car Rental Excess cover!

Questions, comments? Feel free to comment below!

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