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Old 03-10-2018, 07:34 AM   #1 (permalink)
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Thoughts on 1% Cash Back Debit Cards

I think it is worth discussing cash back Checking accounts. At least a couple of banks are offering them; I do use one; though I think it's be a bad idea for someone getting out of debt to use it. Here is my thought process on that:

First and foremost, my debt only consists of a mortgage. While I do not presume to say too loudly that I am 'out of debt', I will say the process to get here was enlightening. Along the way, I tried all manner of cash back credit cards, 0% no fee rollover deals, and the like. After all was said and done, I noticed that while my overall debt burden was going down, it was going down slowly. The issue was truly my spending habits (not trying to invoke a Dave Ramsey Rant here). So, I buckled down, locked the credit cards in my safe, learned to budget, got myself out, then canceled the CCs when I was done. 'Nuff said.

Then an odd thing happened: In November, Discover started to 1% cash back on debit purchases. Since I already happened to have their checking account, my first thought was: 'This is a win-win'. I could be out of debt and get money back on purchases again. However, I kid you not, the very next thought I had was: '<self> remember that spending habits were your issue, not the cash back'. So, I just kept on following my plan and doubled down by only sending a percentage of my paycheck to my checking, just for the necessities/items in budget.

I do not fault anyone for using cash back anything. Credit Cards, Debit Cards, Rewards Programs, etc. Heck, I continue to use a cash-back-checking myself. However, I will say that they themselves did not teach me how to budget. Further, I will go as far to say that they encouraged poor spending habits by, in effect, rewarding them.

Bringing it all back together, as this isn't a review of the checking account itself (it's fine btw). I would advise any friend (and we are all friends here) to pause on using spending rewards programs for a while and work on budgeting.

If you are already there, Rock on Garth!

Thoughts?
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Last edited by Captainneeda; 03-10-2018 at 07:41 AM.
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Old 03-10-2018, 10:21 AM   #2 (permalink)
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On a budget of $1000/month, that 1% is $10. Most people are apt to impulsively spend more than that with a card.
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Old 03-10-2018, 10:27 AM   #3 (permalink)
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For most people: all purchases should be made on a credit card. Credit cards offer much better fraud protection services and generally offer better cash back options as well. In addition, this will build your credit score. Pay that credit card off each and every month.

Using a debit card anywhere except your bank's ATM is risky - you are exposing your entire checking account if your info gets stolen. Also, banks do not offer nearly as robust services if your info is stolen - some even tell you that you're on your own if your money is stolen from your account. Think of it this way, credit card companies make a boatload of profit and have more money to spend on customer service and fraud protection - banks have a lower profit margin.

If you are addicted to spending money, then this plan will not work for you.
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Old 03-10-2018, 08:13 PM   #4 (permalink)
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Since I never carry a balance on my credit card, cash back makes good sense. The 2017 cash back pay out on my visa card alone was almost $300 which looks better in my account than paying interest on it but I understand your thoughts on the possibilities of over spending with these cards, it's all mind set ( make up your mind on how you're going to use it and stick to it).
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Old 03-14-2018, 01:25 PM   #5 (permalink)
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Quote:
Originally Posted by maggot View Post
For most people: all purchases should be made on a credit card. Credit cards offer much better fraud protection services and generally offer better cash back options as well. In addition, this will build your credit score. Pay that credit card off each and every month.

Using a debit card anywhere except your bank's ATM is risky - you are exposing your entire checking account if your info gets stolen. Also, banks do not offer nearly as robust services if your info is stolen - some even tell you that you're on your own if your money is stolen from your account. Think of it this way, credit card companies make a boatload of profit and have more money to spend on customer service and fraud protection - banks have a lower profit margin.

If you are addicted to spending money, then this plan will not work for you.
Agree with all of this. It's perfectly fine (even advantageous) to use a credit card for purchases.

You just need to get out of the mindset that spending = earning. Yes you receive rewards benefits from spending on credit cards, but the real value is convenience and fraud protection.

Buy what you need and can afford, and make it a priority to pay off your credit card in full every month.
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Old 03-14-2018, 07:26 PM   #6 (permalink)
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I everything I can through my credit cards and pay them off each month to reap the rewards. But that's only a small part of what I like about them.

I like how it simplifies my payments. I don't worry about when I need to buy things vs when I'm going to get paid. I also like having the weight of the credit card companies behind me when a store decides to try to screw me. On more than one occasion when a store was hassling about refunding money for a service or product I've just called up Mr. Credit Card, and they go get my refund. And also Fraud protection. They're out to stop fraud because that's THEIR money, not yours. Fraud on a debit card is your money, and nobody is in too much of a hurry to get it back for you.

But like others have said, if you can't control your spending, stay away. I keep the mindset that it isn't credit, it is just debit on a one month delay. I know my budget and what I can spend for the month, and I keep a chunk in savings to float me in case of emergencies so I'm not carrying a balance on my cards. It's a game against the credit card companies to see who makes money off whom. I try hard to make sure I'm winning the game.
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Old 03-15-2018, 12:35 PM   #7 (permalink)
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1% money back seems worthless... There are much better cards out there.
If you are worried about over spending you can request a card limit during sign-up. I think only Banks and the CC companies (same thing?) will have an option to set a limit as opposed to just giving you a max line of credit. Store cards generally do not.
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