Visa made headlines this week with reports that its branded debit cards had beaten its credit cards for the first time in terms of total dollars spent on purchases.
This isn’t an entirely new trend. The Nilson Report, which covers these matters, noted last fall that debit transactions exceeded credit transactions in 2005 and have been steadily gaining market share ever since.
Some industry observers point to the rise of debit as an indicator that consumers are becoming more responsible in their spending, since debit transactions require immediate payment, while credit card balances can be stretched out over time. The change may also reflect a growing public disgust with the often-outrageous interest rates and other nasty practices credit card issuers are known for.
While using a debit card may make increasing sense in today’s economy, consumers do need to be aware of debit's drawbacks.
1. Debit cards offer fewer consumer protections than credit cards and their issuers have their own nasty practices.
2. Debit cards are also an easier target for thieves.
And while debit cards may be more helpful than credit cards for consumers who are trying to live within their means, there’s another alternative worth noting: cash.
As a number of academic studies, like this one, have indicated, consumers who pay with cash are less likely to overspend than those who use plastic in any form.