From a Banker: Stop Using Credit Cards!

How about a New Year's Resolution to end 2008 with hundreds - or maybe even thousands - of extra dollars in the bank?

If saving money sounds about as difficult as losing 25 pounds by swimsuit season, think again. It's actually as simple as promising that this year, you will find a bank that helps you save money.

Here's what you need to do:

First, stop using credit cards. Use debit cards instead.

Credit card companies want you to go into debt. Ever notice how they hand out so many gifts and rewards? It's so profitable to get you into debt that they're actually willing to bribe you to spend. It's pure gravy when you don't pay your balance in full or miss a minimum payment.

Unsurprisingly, credit card companies are good at getting people to spend beyond their means. In 1996, the average U.S. household had $5,875 in credit card debt. By 2006, that figure had climbed to nearly $10,000.

With debit cards, you're spending your own money. So you can't be lured into debt.

Next, you should avoid fees and earn interest on all your money. Most people use banks that pay virtually no interest on deposits and have a slew of hidden charges and complex fees.

Take overdraft fees. It is estimated that banks make a whopping $17.5 billion annually through these charges.

The reason this is so profitable is twofold. First, the average overdraft fee has climbed to $29. And second, banks apply it liberally.

Say you start your Saturday morning with $1,143 in your account - and then send $900 to your landlord, $50 to your electric company, $150 to your cable and internet provider, and $10 to your favorite charity.

Each recipient deposits the checks four days later. Unfortunately, that same day, your nephew cashes the $250 you gave him for his wedding six months ago. By the time he returned from his honeymoon, you'd forgotten about it.

Because most banks process daily transactions from the largest to the smallest dollar amount, you're looking at four separate overdraft fees. So if your bank charges the industry average, that's $136 in penalties.

A similar fleecing happens at the ATM. When your bank charges you to use another bank's cash machine, you get socked with two separate fees - one at the ATM and one on your statement. So instead of just paying what you see on the screen, you're actually paying double that amount -- to access to your own money!

When this double charge is factored in, the average ATM fee is $2.91. On a $50 withdrawal, that's a 5.8% charge.

Banking customers shouldn't have to navigate a minefield to avoid hidden fees.

So find a bank that offers a free overdraft line of credit with a competitive interest rate instead of charging overdraft fees. That way, whenever your checking account goes negative, you automatically borrow the cash you need at a reasonable cost rather than a lump sum fee. The "overdraft" simply shows up as a charge on your credit card, and there's no penalty fee.

Banks also shouldn't charge you to use another bank's ATM.

Finally, find a bank that pays high interest on all your money. These days, there's no reason to do business with a bank where you'll lose money over time. According to, the average savings bank pays less than half a percent of interest - well under the rate of inflation. The annual percentage yield on the average checking account is even worse. A number of direct banks are now offering savings and checking accounts that pay three percent or more.

Millions of Americans use big banks because they assume that if a bank is well-known and popular, it must be offering its customers a good deal. But this clearly isn't the case.

Making this mistake could be costing you a fortune. In 2008, fixing this mistake could save you thousands.


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Rebate Incentives for Using Debit as Credit Cards Kicks Merchants in the Cash Drawer

When it comes to paying with plastic, what consumers hand over to merchants can make a big difference both to buyer and seller.

Debbie Marinaro of Noblesville estimates she uses her credit card about 95 percent of the time when she makes purchases.

“I would use credit more than debit for those expenses that I would let roll over to the end of the month,” she said. “But I use my debit card for when I want to pay ‘cash’ – like a check and want it to come directly from my account.”

Marinaro said she never uses her debit card as a charge card, but many people do, to the chagrin of merchants who pay higher fees to process debit cards as charge transactions.

Sue Roudebush of the Old Picket Fence shop in Noblesville said about 75 percent of “plastic” transactions are processed as credit, rather than debit.

“If they (purchasers) run it as a charge and it’s over $25 it costs less for me as a retailer,” she said. “If it’s a debit card and it’s over $25, then it’s a lot less for me – sometimes a percentage, percentage-and-a-half.”

But Roudebush said if it’s a debit card transaction under $25 the retailer has to pay more.

“This is so confusing,” she said. “It’s like 55 cents per transaction on a $10 debit card versus a $10 credit card … it only costs me like 1.5 percent.”

Tammy Daubenspeck of Eleanor Rozella’s said more than half the purchases at her store are credit transactions.

“I think some banks will tell the customers that if they use their debit card as a credit they can get a refund,” she said. “I know myself, when I use my debit card and I punch it in as credit, I get back so much rebate every month in my checking account using it that way instead of using it as a debit.” - The use of credit/debit cards for purchasing everything from gas to groceries has grown steadily in popularity, however, some confusion remains as to the best choice to make when making financial decisions. Photo by Robert HerringtonSome credit card companies may even offer purchase protection on consumers goods to customers who use their debit cards as credit cards that they might not otherwise have with a debit card purchase should something go wrong after the sale. VISA media relations did not return a request for clarification on the benefits and disadvantages of requesting merchants transact debit cards at the higher-fee credit purchases. But merchants agree, even if customers hand over plastic cards to pay for purchases costing under a dollar, retailers have to offer the charge card service to stay in business.

“So many more people are using their debit cards rather than writing the old-fashioned checks, which is really good for us, because you’re pretty much guaranteed a payment,” Daubenspeck said. “Unless someone charges, let’s say, $5. That’s almost practically giving it away by the time you pay your fees and everything. It’s so much better to pay cash.”

Chuck Crow, president of Community Bank, agrees. He advises paying for purchases with cash and forgoing making credit purchases as much as possible.

Debit cards make it much easier to pay directly from a checking account without writing a check. But Crow said paying with a debit card can be risky if someone steals your card and your personal identification number (PIN).

“If you use your debit card, you have to enter that PIN,” he said. “If somebody stole your debit card and used just your card, they could clean out your checking account. Maybe there’s a consumer advantage for it, but most of the large retailers want to know what it is because of that difference in the processing rate, and that’s usually why they ask you, ‘Is this a debit card or credit card transaction?’”

Crow also advises keeping careful track of how many purchases you make with your debit card. Even though you can process a debit card as a credit transaction, it is not a credit purchase. Keep the amount you spend written down in the check register so you don’t come home from shopping to find a costly surprise.

“If you’re not disciplined, then all of a sudden all of the money in your checking account is gone and you wonder where it is,” he said. “And if you don’t keep all those charge slips, then you have to wait until you get your statement or you go online to look up your statement and see if there’s a charge to the local grocery store or drugstore, or whatever it is. So it requires some discipline.”

By Rebecca L. Sandlin

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Which is Better: Credit Card or Debit Card?

Let's compare them. Are they the same? Well, physically they are the same – just a piece of plastic. But they serve different purposes. Well then, what are their differences? Which one is better?

Credit card is for you to buy things without paying first. The bank will pay for you first and at the end of the month, you pay back the bank. You can decide to pay back the bank in full or partial. When you pay the bank in partial, basically you owe the bank. You’re actually taking a loan from bank. So the bank will charge you the interest based on the amount of loan you borrow.

Debit card on the other hand is for you to buy things with the amount of cash that you have in your savings account. Unlike credit card, with debit card you’re actually paying yourself for the things that you buy and the money is deducted directly from your savings or current account once you swap you card.

In my personal opinion, the following factors determine whether you should choose credit or debit card.

Which one is more convenient?
I had a debit card before (VISA Electron) and it seems like the problem with that is not well accepted in a lot of places. Debit cards are not widely accepted, and are not as popular as credit cards. However, when I traveled to the USA last year, debit card seems like as widely accepted as credit card. Not only that, I can use the debit card as an ATM card to withdraw cashes without any extra charges.

Which one has reward points?
Does debit card have a reward points system? Not that I’m aware of. One of the reasons I choose credit card over debit card is because of the reward points. You can collect points when you spend your money with the credit cards and you can redeem the points for cash or other stuff. So far, I have redeemed the cash and 6 months prepaid phone card. I love this reward points system.

Which one has cheaper fees?
I have been using credit cards more than 5 years and I haven’t paid them a single-cent. Just call them to waive the fees or cancel your existing card and apply for the new one with promotion. Usually the promotion will give you free annual fees. Some even give you free for life time. As for the debit card, I think the fees should be free as well.

Which one is better control of your finances?
People says sing debit card can gain more control of your finances because you can’t spent the money more than what you have. My belief is that if you can’t control your own finance, no matter what cards you’re using, you will end up with trouble (e.g. overdraft facility in your current account). Using the debit card is just an excuse. If you can control your own finance (aware of your spending), it is really doesn’t matter that which card you’re using. As long as you can use credit cards wisely, I don't see there is a problem with that.

Is there anything that I left out? I personally prefer credit card because it is convenient and I can use it all around the world. Not only that I don’t need to pay for the fees at all, at the same time I can enjoy the reward points. If debit cards can fulfill all these requirements above, I don’t mind using it as I’ve already used the credit card as debit card or cash. I always pay my payment in full every month.

So for me, credit card is still a better choice at this moment. What is your choice? Well, here is what people say:

Credit cards are great to be kept, its like an instant borrower for me when I need it. For example, entering hospital with a signed credit card means instant curing process. Using credit card on a daily basis could be a trap. No matter how discipline you are, you may still be trapped once in a while...

Debit Card is for those who are not qualified for credit card yet.

I do not see any use of debit card at all unless one day they offer higher compound return rate than FD, then may be its worth while.

I use debit cards for most of my expenses. I just don't trust myself with a credit card. My inability to pay bills on time quickly outweighs the rewards programs.

Credit card is useful especially for emergency cash. Debit card may come into problem if you do not have enough cash in your accounts. For those who are not qualified for credit cards, it leaves them no choice to get the debit card instead. This is especially true for those do not have permanent job.

If you can’t really control your spending, debit card is the only way to go. I agree that sometimes spending is really quite fun and enjoying. But in my opinion, we have to somehow learn how to control our spending rather than using the debit card to force us to control our spending. It should be done in proactive way rather than reactive way. Using the debit card to control our spending is a reactive way.

The best thing about credit cards is rewards. Most consumers in US prefer cash back credit cards. However, those cards are for consumers with good credit only. The biggest problem with credit cards is that you have to be approved for one. And today with all that banking crisis going on it is even harder to get approved.

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