Marketplace Scratch Pad

Will that be debit or credit?

Scott Jagow Oct 7, 2009

The Fed says revolving credit (see also: credit cards) had a big drop off this summer, more than 8% on an annual basis. Meanwhile, debit card usage has taken off. People are leaving the plastic in their wallets, and instead using the… other plastic. Good thing?

From the Washington Post:

There is some indication that the shift to debit is partly a visceral reaction to credit card industry practices in the past few months. Since a law was passed in May that will limit the industry’s ability to raise rates and fees, many issuers have cut credit lines and increased rates, forcing borrowers to look for other modes of payment.

“Part of this is kind of consumer backlash against the industry due to its practices,” said Curtis Arnold, founder of the consumer Web site

Practices like this maybe?

A testimonial from the Post story:

Larry Jones, for example, wants nothing to do with credit cards once he pays off his $2,500 bill. He recently moved from Chicago to live with his brother in Baltimore after losing his public relations job. With no steady income, he has stopped using credit — “You’re spending money you don’t technically have,” he said — and switched to his Chase debit card.

“This works better for me,” he said. “It gives me peace of mind to use my debit card. You take the heat up front.”

On the other hand, if you pay off your credit card every month, you don’t get hit with fees and in many cases, you get miles or other “rewards.”

With debit cards, there’s the overdraft problem. The Center for Responsible Lending has a new study that says bank overdraft fees have increased 35% in two years:

It is inappropriate for our nation’s banks and credit unions to rely on fees unfairly stripped from their customers’ accounts.

The runaway cost of this practice and our current economic situation make overdraft reform urgent.

The most common trigger of overdraft fees are small debit card transactions that could easily be denied for no fee. This is how things used to work, and according to a 2008 nationally representative survey, it’s what the large majority of people prefer.

A couple of charts from the CFRL:

Look at that. Americans spend more on overdraft fees than fresh vegetables.

Personally, I’m a debit card guy for the most part. I think I’m more disciplined that way. I just make sure I don’t overdraft. But I’ll mix in a little credit card use now and then, only as much as a I can pay off that month.

More tonight on Marketplace. But what about you? Which do you prefer?

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