Stop Using Your Debit Card Canada!

stopusingyourdebitcardcanada.jpgCanadians love their debit cards and I, for the life of me, can’t exactly figure out why. I think it would be safe to say that most adult Canadians also have at least one rewards credit card in their wallets in addition to their debit card, but still many of them simply leave it in their pocket when it comes to making everyday purchases. I see this happen time and time again when I’m watching people in check out lines and when I’m out with acquaintances.

If you’re going to be purchasing something anyway and you can earn somewhere in the range of 1 to 10 percent of the value of the item you are purchasing in rewards, then why not utilize that as much as possible? Of course, the reward you will get depends heavily on how good your credit card is and how good you are at maximizing your rewards, but still something is better than nothing right?

Reasons To Use Your Credit Card For Everything

Not everything that you might need to purchase can be bought with a credit card, but most things can. In some cases, even things like tuition and insurance can be paid with a credit card and be eligible for rewards.

The Rewards Add Up

If you put all your spending on your credit card then the rewards add up very fast, especially for a middle income family. You can easily be looking at $1000+ worth of rewards every year if you put a little effort in choosing a top notch credit card. This doesn’t take into account sign up bonuses nor doing anything too extreme, just having a good credit card and funneling all your purchases through it as much as possible.

Related: Earn Thousands Of Dollars In Credit Card Rewards

If you want to get fancy and start taking advantage of big sign up bonuses, promotions, and referral bonuses, then you can seriously up that amount. For instance, I racked up over $3500 in free flights (5 flights anywhere in North America) in three months this year by taking advantage of sign up bonuses for my wife and I along with referring a few acquaintances and friends.

Protect Yourself From Theft And Fraud

Almost all credit card come with 0 liability fraud protection. This means as long as you behave responsibly and report any known problems, like losing your card, you will never be responsible for fraudulent purchases made on your account and you will be quickly reimbursed for them.

The same can’t be said for using your debit card. Although I don’t know the exact rules as I think they vary from bank to bank, I do know that in some cases you may never recover your money and in most cases your funds will be in limbo for a period of time while everything is sorted out leaving you strapped for cash. This is reason enough for me to avoid using my debit card as much as possible.

Helps Build Your Credit

Having and using a credit card responsibly helps build and maintain a healthy credit score. Just make sure you pay it off in full every month, you don’t open way too many cards too quickly, and you keep your balance typically less than half of your available credit limit most of the time. Doing so will only help build your credit score and aid you in accessing credit when you need it in the future.

If you want to know more about how your credit score works, Liquid from Freedem Thirty Five Blog has broken down how a credit score is calculated into a nice pie chart.

Get Free Insurance On Your Purchases

Top tier credit cards come with all kinds of free insurance. Here is a list of some of the insurance benefits you can expect with a good card.

  • Purchase Protection – If your purchase is lost, stolen, or damaged within the first little while you will be refunded the entire purchase price.
  • Extended Warranty – The best cards will give you up to an additional 2 years of warranty on most products you purchase using the card, many others will give 1 extra year.
  • Price Protection – If the product you bought goes on sale anywhere else, you can get a refund of the difference by calling in with proof.
  • Travel Medical Insurance – Covers your medical bills while you are out of country or province.
  • Trip Cancellation Insurance – Get a refund for non-cancellable travel purchases if your trip has to be cancelled before departure for a list of approved reasons (usually medical reasons or a death in the family).
  • Trip Interruption Insurance – Covers your costs to get home if an emergency arises during your trip.
  • Travel Accident Insurance – If a travel accident occurs and you suffer major injury or death, then you or your beneficiaries will receive a large lump sum payout.
  • Flight Delay – Gives you some spending money and coverage for living expenses (hotel, food, etc) while you wait for your flight.
  • Baggage Loss – Insures the contents of your baggage in the event that they are lost by the travel carrier.
  • Baggage Delay – Allows you to purchase some replacement items if your baggage doesn’t make it to your destination on time.
  • Rental Car Insurance – Covers damage to the rental car if you get in an accident or the car is stolen (not liability insurance).

Other Perks You Can Expect

Depending on the card you go with, there are a whole host of other perks that can go along with a rewards credit card not limited to the following:

  • Personal Concierge – Someone you can call on as a virtual assistant to do basic work and research for you, particularly when it comes to making purchases of goods and services.
  • Travel Help – If you are in a pinch while travelling, many cards offer a hotline you can call to get hospital information, legal services, emergency document replacement, general information, and various other travel-related services.
  • Airport Lounge Access – Many travel cards give you access to high end airport lounges where they serve free drinks and offer a comfy resting place while you wait for your flight. Some even offer showers and free food as well.
  • Special Event Access – American Express is well known for their front of the line program that gets you first pick to tickets at various concerts and events.
  • Upgraged Status – Some cards will give you upgraded status in various travel rewards programs without having to earn it like Starwood Preferred Guest or Hertz Car Rentals.
  • Roadside Assistance – Some higher end cards come with roadside assistance included which can represent a big savings for those that already purchase those services.
  • Travel Vouchers – A voucher that either gives you a discount on travel or possibly a free ticket for your companion when you purchase a regular full fare ticket.
  • Priority Check-In  – Skip the security and check-in lines at the airport by accessing the priority lane.

Valid Reasons For Not Using a Credit Card

There are some valid reasons for not wanting to use a credit card. These are the two biggest:

You Can’t Commit To Paying It Off Every Month

If you can’t commit to paying off your credit card every month, no matter what, then you should run away as fast as you can in the opposite direction. This comes down to knowing yourself and the amount of self-discipline you have. Credit card interest rates are extremely high and you could easily get caught in a debt spiral if you don’t pay it off every month.

You Will Be Enticed To Spend More Money

Some people say that spending money via credit card is just too easy and it causes you to spend more money. I think this is factual, but if you have good self-control than you should be able to keep this mostly in check. Besides, using a debit card is almost equally as easy except for you have a hard-limit on the maximum amount you can spend.

If you’re a cash-in-jars kind of person, then credit cards probably aren’t for you.

Excuses For Not Using A Credit Card

There are also a lot of excuses thrown around that don’t really hold water when you look at them closely.

They Aren’t As Safe As Debit Cards

Debit cards used to be less likely to be used fraudulently when then they were first to offer PINs and chips, but now credit cards offer these same features. In fact, they are actually significantly safer because of the zero liability guarantees they have that debit cards don't.

Related: Credit Card Terminology Explained

Paying An Annual Fee Is Stupid!

Actually, failing at simple math is stupid! Paying an annual fee makes perfect sense if you end up with significantly more value in rewards than the cost of the annual fee. Besides, there are plenty of great no-fee credit cards out there to choose from as well but you really should crunch the numbers because typically an annual fee card will come out ahead for people dedicated to funnelling all their spending through their credit card. The perks are usually way better as well!

They Cause Higher Prices

This is partially true because credit cards do charge fees to the merchant usually ranging from 2-3% of the purchase price. Interac debit cards only charge a small flat fee on each purchase that almost always ends up being less than the fee charged by a credit card.

This can indeed cause higher prices as those fees are passed on to consumers. However, people aren’t going to stop using credit cards all of a sudden without some sort of regulatory change by the government. That means if you are the one paying with cash and debit and not collecting any rewards, then you are subsidizing everyone else’s purchases. Are you ok with that?

It Hurts The Little Guy

Yes, the merchant has to pay a fee but it doesn’t really hurt them that much and here’s why:

  • They typically pass the fee on to their customers anyway, so no big loss for them.
  • They benefit from increased sales from customers who spend more by using credit cards.
  • They benefit from easier book keeping and cashless transactions by accepting credit which saves time and money.
  • It's their choice to accept credit cards or not. If they don’t want to, they don’t have to. Period.

What’s Holding You Back?

Is there anything else still holding you back from making the switch from debit or cash to credit? Leave a comment if you are a successful credit card user or if you are a die-hard debit fan!

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Comments

Sandi's picture
I can think of three very good reasons to use debit cards and one bonus reason: 1. A declining balance is often a better motivator than an increasing one when you're trying to stay on budget. 2. Using credit cards to chase rewards results in incrementally higher spending. Bonus reason (for curmudgeons and cynics only): credit card companies are the ones encouraging people to spend this way.
October 22, 2013 @ 10:38 am
Stephen Weyman
Stephen Weyman's picture
Thanks for your thoughts Sandi. However, do you agree that if you can keep the psychological aspect under control and thus control your spending, then it makes sense to use a rewards credit card? I always say if given a magic wand with the ability to eradicate credit cards from the face of the earth, I would probably do so simply to help those people that have so much trouble dealing with them. That's why I always attach strong warnings to anything I write about them. However, in a world where that's not possible my feeling is that teaching people to use them responsibly and taking advantage of their benefits is the best alternative.
October 22, 2013 @ 11:10 am
Sandi's picture
I don't really think that it's necessarily a matter of low/no impulse control that makes me skeptical of reward-chasing. It's that it's not a completely efficient system, depending on how people are wired to think about their money and spending. It's dangerous to assume that everyone thinks about money the same way you do personally.
October 22, 2013 @ 12:12 pm
Stephen Weyman
Stephen Weyman's picture
Yes, everyone is different and I'm certainly not making the assumption that everyone is like me. I clearly spell out that this isn't for those people who can't stick to using a credit card only for stuff they would buy anyway and never carry a balance. If that's not you, then this isn't for you. Hopefully I was clear on those points, and if not then hopefully these comments clear that up.
October 22, 2013 @ 12:27 pm
CheekySaver
CheekySaver's picture
I pay cash... and I do sometimes use my debit card. In fact i am going to get a target debit card application in very soon so I can take full advantage of the 5% off. I do not have a credit card at all and I would not be eligible for one. My income is simply too low to qualify. (I am on disability, bad genes!) The good news is... I don't have debt that I won't be able to pay off either. I do take advantage of customer reward cards and I enjoy them. I will say I am very disappointed that these reward programs are only for people with credit cards. It does dismiss the demographic of those with less money. What I am referring to more specifically is Loblaws and Real Canadian Superstore. I am not eligible for a credit card so I am not eligible for a future discount. Sometimes you get paid to use a debit card. What this means is I price match at target where they will be giving me the extra 5% back and it is just across the street from Real Canadian Superstore. If i spend 4200 on groceries I get back $42 worth of groceries later with PC... at Target if i spend $4200 they give me back $210 and that is the pre coupon total. For those that don't have a credit card for whatever reason... don't give up there are still ways to save! I want to add that PC does give a bonus of 10 points per dollar spent outside of it's stores so you can still earn points by purchasing gas or in some cases paying rent. It is a valid and great way to earn free groceries. I really like this post Stephen! Nice job!
October 23, 2013 @ 9:25 pm
Stephen Weyman
Stephen Weyman's picture
That's some great input, thanks! I almost signed up for the Target card the one and only time I shopped at Target to date but I didn't realize it wasn't just a rewards card but either debit or a credit card. I didn't want another one of either of those so I decided not to at the time. If I end up doing more shopping at target though I might have to reconsider. PC used to give rewards if you used their debit card at their stores (Superstore, Loblaws, etc). It's definitely true that the perks are petter for those with the MasterCard, but I've been banking with PC for years. When I make purhcases there I don't use my debit card though because the credit card rewards are so much better. I really like the setup you have with the Target card for the 5% discount + price matching. That's a great way to get your groceries at the lowest possible price and only have to shop at one store. How's the grocery selection at Target anyway? I don't think they have all that much at the stores in my area.
October 24, 2013 @ 8:50 am
CheekySaver
CheekySaver's picture
I really wish they had produce and meat at Target. I have found that to maximize my grocery budget using price matching and point card systems that I do still need to go to a few stores. Pc Plus just put out a new points card Nov 15th and it is hands down a money maker for the first week. However If I purchased all of my groceries at superstore it would be a financial mistake that would not make my budget go as far as I need it to right now. I have about a month before my pain level goes up. Right now I am still in stock up mode. Around Christmas when my pain level is higher I start looking for alternate ways to save and usually for ease of use it is walmart where I can get all my groceries. They are the easiest to price match at and they don't require over rides per item like at superstore. Walmart tends to allow 5 identical items to be price matched... target does 4 and superstore has in the past limited to 1 or 2 items... with current competition for our dollars increasing they are a little better about that 1 to 2 limit but they still have to call a supervisor for every item. It takes sometimes as long as 10 - 15 mins for a supervisor to arrive, then the cashier and everyone behind you is not happy.
November 18, 2013 @ 1:35 pm
SmartCanadian's picture
Another reason for not using credit cards is that there are still stores, particularly community stores, that do not accept them for whatever reason. And these stores play a significant role in our lives because they tend to sell items that are unique to certain communities and are not available at major chains.
October 24, 2013 @ 11:44 am
Stephen Weyman
Stephen Weyman's picture
Indeed, you always need a backup method of payment. I always keep cash in my wallet along with my debit card for those times when credit isn't accepted. It's rare, but it happens. At least I don't have to go to the bank very often to refill my cash supply!
October 24, 2013 @ 1:20 pm
Barry
Barry's picture
Great article Stephen! I agree that everyone's situation is unique, but if you have the ability to use a credit card responsibly and completely pay the balance off monthly, there are numerous benefits to be had. As you’ve mentioned there are cards that offer excellent insurance coverage, points for travel, goods or cash, and zero liability on fraud protection. If you lose your card or it’s stolen, you are protected on any future purchases. If you lose cash or it’s stolen, well, it’s gone. Debit card use doesn’t offer as much protection either. I’ve always used a credit card, but over the last couple of years I’ve ramped it up and try and use credit for all purchases. Not that I try and purchase more, but anything that I would normally purchase I try and use my credit card. I’ve also made sure I use a card that delivers the best rewards possible. For me it’s all about cash rewards, so I now use the Capital One Aspire Cash World MasterCard. I used a President’s Choice MasterCard for many years, which was great when I had a mortgage with PC Financial (as they used to give you points on your outstanding mortgage balance – I don’t think they offer that any longer). That delivered about $500 per year in PC points. When I renewed my mortgage I switched banks as PC wasn’t as competitive on their rates as they used to be, and they substantially watered down the points system. At that point I switched to the MBNA Smart Cash MasterCard. It offered a great cash rewards system that, based on my spending amounts, returned about $400 - $500 in cash rewards (only available in $50 increments). Alas, MBNA watered down their returns, so I switched to the Capital One card. Glad I did, because it too has been discontinued as a “world” card, and the cash rewards are not as generous in their “platinum” format. I’m told that, for the foreseeable future, I will continue to receive my existing rewards (1% cash back on all purchases, along with an additional 0.5% annual cash back on all rewards earned during the year). All this to say that, if you are going to spend the money anyway (and not go on a spending spree just to accumulate rewards), why not take advantage of accumulating rewards? It’s a great way to keep track of your spending as you get an itemized account of all purchases (and can even check “real-time” spending through your credit card web site), you get to keep your money in your bank account longer, you don’t have to carry around cash (and potentially lose it) and you get great insurance protection. It’s also great for paying recurring monthly bills like cable tv, internet, cell phone and home and auto insurance. And...the credit card company gives you money back! Even if you don’t like the idea of getting a large credit card bill every month, you can make daily credit card purchases, and when you get home, you can go to your credit card web site and pay down your balance immediately. Sort of like using your debit card, but you still accumulate rewards! So for me, I see many benefits to using a credit card, and very few benefits (none?) for using a debit card. You have to do what works best for you…..just be smart with your money!
October 25, 2013 @ 1:00 pm
Stephen Weyman
Stephen Weyman's picture
Great summary Barry! That pretty much sums up my intention for writing this article: to motivate those who can effectively limit their spending to things they would be purchasing anyway while using a credit card to go ahead and do so because it makes a whole lot of sense. Thanks for sharing your personal story as well. Right now I switch back and forth between credit cards that offer cash rewards and travel rewards. Travel rewards are typically more valuable but cash rewards are also nice. I'm one of the lucky ones that has the MBNA World Points MasterCard that has no annual fees and pays 2% cash back on all purchases with no tiers or limits. You had to go through several rounds of grandfathering years ago to get that one. It all started with MBNA Starwood Preferred Guest MasterCard. The good cash back rewards cards, especially of the no-fee variety, are starting to dwindle in Canada after several years of growth.
October 25, 2013 @ 1:56 pm
John
John's picture
One thing to definitely watch for on rewards cards is the qualifying purchase amount. Cdn Tire has a new card that offers 5% but if you read the fine print you have to spend quite a bit ($30,000/yr) before you qualify for that rate. Visa Cash Rewards cards are like that too, your credit is applied back once per year. First $1000 is at 0.25%, next $1000 is at 0.5%, and only then do you get the 1% rate. PC Mastercard gives you 1% on everything. Funneling to one card is the only way to get the full benefit of the bonuses.
October 26, 2013 @ 3:08 pm
Stephen Weyman
Stephen Weyman's picture
Yes, you definitely want to watch out for credit cards with tiers like that. I tried to avoid tiered cards altogether and they used to be much more prominent. There has been a great deal of simplifying in credit cards rewards programs over the past several years though, which has been a definite plus for the consumer!
October 27, 2013 @ 9:16 pm
CanadianDaniel's picture
Stephen, Great insights. Couple of questions specifically about debit card safety vs credit cards. 1) The Canadian Bankers Association (CBA) implies that debit cards are just as secure as credit cards. But isn't it true that debit cardholders are only protected by a voluntary code of conduct ("Canadian Code of Practice for Consumer Debit Card Services") as opposed to the legal "Cost of Borrowing (Banks) Regulations" (maximum consumer $50 liability in absence of egregious actions)? 2) Are consumers more vulnerable to additional charges like NSF cheques and late payment penalties when their debit-linked account is frozen for a fraud investigation? My understanding is that credit cards won't involve such charges. 3) Banks have built-in systems to check for unusual purchases on your credit card. I know because someone in Portugal once intercepted my credit card details and was caught trying to input fraudulent charges. The card company immediately identified the suspicious charges because there were from a foreign merchant (and I hadn't advised them I was going to travel). One of my friends had her credit card stolen, but the perp was declined when he tried to ring up charges for electronic products at stores she never shopped at. Do debit cards have similar algorithms in place? Cheers!
October 27, 2013 @ 2:05 pm
Stephen Weyman
Stephen Weyman's picture
Those are some really great questions and unfortunately I don't have equally great answers for you because I don't have any inside information on the matter and I only know what I've been able to glean from my own personal experience as a consumer and through my own online research and reading. 1) I have heard stories both about people not getting their money back and being delayed for a long time in getting their money back with debit cards so I'd assume you are correct here but I don't know that for a fact. I've never heard such stories with people using a credit card. 2) I think extra fees would be more likely in either case, It's just much easier to generate these fees on a bank account than it is with a credit card account. That is only magnified because credit card companies are very quick to remove fraudulent charges from your account as I've had it happen to myself at least a couple of times and I remember it being very quick and painless each time. In either case, I think the customer service department would be willing to lend a sympathetic ear and remove such charges if asked. I've had good luck getting banks to remove fees if the circumstances warranted it. 3) Again, I have experienced fraud algorithms being triggered on my credit cards many times even when I specifically told them about travel and unusual purchases, so I know they are very vigilant. The reason for this is likely mostly to save themselves money because they are shouldering all the liability. I have never heard of such a thing being triggered on a debit card or experienced that myself. If anyone has more specific information related to these questions, please speak up!
October 27, 2013 @ 9:13 pm
save. spend. splurge.'s picture
I use my credit card like a debit card. Basically I buy stuff on it, then pay it off immediately. I never buy more than what I have in the bank to clear it. Plus I get 1% in rewards back (PC Mastercard and CIBC Dividend)
November 17, 2013 @ 2:11 pm
Chris C
Chris C's picture
I think credit cards suck. The vendors pay 1-3% transaction costs to the CC company and we end up transparently eating those costs whether we use a credit card or not. It's highway robbery. If there was only debit the world would be a better place.
May 21, 2014 @ 6:52 pm
Stephen Weyman
Stephen Weyman's picture
I'm partially inclined to agree with you Chris. Yes, some or all of those fees ultimately get passed on to the consumer. However, credit cards do provide value on both sides of the transaction. The merchants get a cashless transaction with easy book keeping that saves them both time and money. On the other side the consumer gets fraud protection, rewards, insurance, no fees, an interest free grace period, no transaction fees, and the convenience of not having to carry cash. If there was the chance of eradicating credit cards from the face of the earth with the waive of my hand, I would probably do it just to save people from getting into debt they cannot mange by using credit irresponsibly. Otherwise, I think it's a pretty good system overall.
May 21, 2014 @ 9:34 pm

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