Isn't That Rich Podcast

As the holiday season kicks into high gear, shoppers everywhere are gearing up for Black Friday deals and Cyber Monday splurges. But before you swipe your card, it’s worth considering whether you should be reaching for your debit or credit card. While both have their merits, they also come with risks that can affect your financial health. To help you navigate these options, we spoke with Lexi Cavins, Customer Service Specialist at Farmers State Bank, to break down the pros and cons of each.

The Lowdown on Debit Cards

Debit cards are a staple for everyday transactions. Linked directly to your checking account, they offer the convenience of plastic without the temptation of credit. When you make a purchase with a debit card, the money is deducted instantly from your account, making it easy to keep track of your spending in real-time.

Pros of Debit Cards:

• Immediate Deduction: Money is withdrawn directly from your account, allowing you to track your finances closely.
• No Fees: Typically, there are no fees associated with debit card transactions. Plus, some accounts, like Farmers State Bank's Kasasa accounts, even reimburse ATM fees.
• Safety Features: Using services like Apple Pay with your debit card can add an extra layer of security by disguising your card number during transactions.

However, debit cards aren't without their drawbacks. Lexi warns that debit cards can leave you vulnerable to fraud, especially if you frequently shop online. “If your debit card is compromised, it can take up to 10 business days to get your money back,” she explains. Since debit cards are directly linked to your checking account, any fraudulent charges can temporarily wipe out your balance, making it difficult to pay bills or access funds.

Cons of Debit Cards:

• Fraud Risk: Disputing fraudulent transactions can be a lengthy and stressful process.
• No Credit Building: Debit card usage doesn’t help you build credit, which is essential for securing loans and favorable interest rates.

Why Credit Cards Offer More Protection

Credit cards, on the other hand, offer a buffer between your bank account and potential fraud. Since they’re not linked directly to your checking account, any unauthorized charges can be disputed without risking your actual cash flow.

Pros of Credit Cards:

• Fraud Protection: Credit cards are safer for online shopping because they offer stronger fraud protection. If your card is compromised, you’re typically only liable for up to $50, and many issuers offer zero-liability policies.
• Credit Building: Responsible credit card use helps you build a strong credit history, which is crucial for major financial decisions like buying a home.
• Rewards: Credit cards often come with perks like cash back, travel points, and 0% APR offers, making them a versatile tool for savvy spenders.

Lexi emphasizes the importance of using credit cards wisely: “Just because you have a credit limit doesn’t mean you should max it out. It’s essential to have a plan to pay off your balance to avoid racking up debt.”

Cons of Credit Cards:

• Potential for Debt: If not managed carefully, credit card balances can quickly spiral out of control, leading to high-interest debt.
• Credit Score Impact: Carrying a balance that exceeds 30% of your credit limit can lower your credit score, making it harder to secure favorable terms on loans.

Tips for Safe and Smart Holiday Spending

With the holiday shopping season upon us, here are some tips from Lexi to help you spend wisely and protect your finances:

1. Use Credit for Online Shopping: Given the increased fraud protection, using a credit card for online purchases is a safer bet. If your card is compromised, it’s easier to dispute charges and avoid draining your bank account.

2. Monitor Your Spending: Even though credit cards offer flexibility, it’s important to keep track of your spending. Pay off your balance as soon as possible to avoid interest charges and keep your credit utilization low.

3. Leverage Rewards: If you’re planning big purchases, consider using a credit card with rewards that match your spending habits. Whether it’s cash back or travel points, these perks can add up.

4. Know Your Limits: Whether you’re using a debit or credit card, be aware of your spending limits. Farmers State Bank allows you to adjust your debit card spending limit through their app, giving you control over your daily expenditures.

5. Shake It Before You Swipe It: When using your card at a gas station, always shake the card reader to check for skimmers. Fraudsters often target less visible pumps, so opt for the ones closer to the cashier.

Final Thoughts

As you prepare for the holiday shopping season, remember that both debit and credit cards have their place in your wallet. By understanding the pros and cons of each, you can make informed decisions that protect your finances and help you get the most out of your spending. And if you’re considering opening a credit card, Farmers State Bank offers a range of options tailored to your needs. Stop by the Marion East location and chat with Lexi Cavins to find the card that’s right for you.

Protect your money, spend wisely, and have a safe and happy holiday season!