Credit or Debit: Which Is Better for Your Financial Goals?
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Here's your money briefing from Monday, January 3rd. I'm J.R. Whelan for The Wall Street Journal. For young adults, setting financial goals and developing smart spending habits can be the keys to healthy personal finances. But there's one question that comes up all the time for young spenders. Credit or debit?
And there's nothing saying that you can't have credit and debit. In fact, the experts say that really having a mix of both really is the way to go.
But when should you use a debit card and when is credit better? WSJ contributor Cheryl Winokur-Monk spoke with financial experts about the difference. We'll check in with her on that after the break.
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Credit cards and debit cards each have their pros and cons. For young people starting out and setting financial goals, it's important to know when it's best to use each kind of payment method. For more, let's bring in WSJ contributor Cheryl Winokur-Monk. Cheryl, thank you so much for taking the time to chat. Thanks for having me. So Cheryl, let's start with a debit card. Are there particular types of payments a young person should use a debit card for?
With a debit card, it can be a good idea to put things like rent or utilities and have that come right out of your bank account. This way, you'll pay your bills first before you get to the idea of discretionary spending. So discretionary spending are things that you don't really need. They're wants versus needs. So if your rent and utilities nearly deplete the account, for example, you won't be as tempted to overspend on things like maybe movies and eating out or things like that because you'll see you don't have it in the account. So that's a good idea to do.
And what are the downsides to using a debit card?
Well, you're not going to build credit. That's one. You're also probably not going to get some of the rewards that come with credit cards. So like cash back, for instance. There are also higher liability limits if the debit card is stolen and used fraudulently.
Yeah. Speaking of safety and security, I want to ask you about that. What are the different security risks for credit and debit cards?
Most credit cards include zero fraud liability policies, and that's going to protect the user from paying for fraudulent purchases charged to their account. Now, if someone gets your debit card or account number and uses it, how much you're going to be on the hook for is going to depend on how long it takes you to report it. So if you report it stolen before the card gets used, there's not going to be any liability. So zero liability for that. But it could be unlimited, for example, if you report the fraud more than 60 calendar days after you get your statement. So there is a little bit more risk. But if you're careful and you report a stolen card or account number right away, that's the best.
Now, what are the experts you spoke with, say, about credit versus debit in teaching young people lessons about spending?
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