Courtesy of The Salvation Army Dallas-Fort Worth Metroplex Command
Salvation Army bell ringer Henry Oliver with a credit/debit card scanner at a stand in Dallas. The Salvation Army now accepts Visa, MasterCard and American Express at 300 of its collection stands.
Salvation Army bell ringer Henry Oliver with a credit/debit card scanner at a stand in Dallas. The Salvation Army now accepts Visa, MasterCard and American Express at 300 of its collection stands. Courtesy of The Salvation Army Dallas-Fort Worth Metroplex Command
More people than ever will buy their holiday presents this season with debit cards, according to a National Retail Federation survey. Consumers are increasingly turning to debit cards for everyday spending, even as they cut back on credit because of money worries and lower limits.
People are using plastic for a lot of transactions these days — whether it's for a gift or another purchase — because debit and credit cards seem to be accepted just about everywhere.
Even the Salvation Army's bell ringers — a decidedly low-tech holiday fixture — have turned to plastic. The Salvation Army is accepting Visa, MasterCard and American Express at 300 of its holiday donation collection sites.
Jacob Jacobus vigorously rings a bell outside a Bedford, Texas, Super Walmart. He says the hand-held card scanner, known as the "cashless kettle," is easy to use.
"They just swipe the machine, just like any regular credit card machine," he says. "You just swipe it. And if it's debit or credit, you put in your PIN or you sign a paper."
Giving More With Plastic
Most people still just drop a few coins in the kettle. But those who donate with a card tend to give more, according to the Salvation Army. And many of them are paying with debit, meaning the money comes straight from their checking accounts.
Visa, the largest payment network, says that spending on debit cards exceeded credit card spending for the first time during the last quarter of 2008. The trend has continued this year.
"We've been anticipating this for years, but it's certainly come faster than we expected," says Tien-tsin Huang, an analyst at JPMorgan in New York who watches the payment services industry. He credits innovations like the cashless kettle for debit's rapid rise.
"I think it's really a function of both Visa and MasterCard driving more acceptance at lower dollar value merchants like taxicabs here in New York City," Huang says. "You're seeing it in McDonald's."
People are more likely to use debit than credit on small items, and that's where most of the growth has been happening. Vending machines and even some churches have card readers now.
But while more money is now spent using debit cards, these gains aren't necessarily coming at the expense of credit cards. Industry watchers say debit is mostly just taking the place of cash and checks.
The Decline Of Credit
Spending with credit has declined during the recession.
"Consumers have definitely pulled back," says Bill Sheedy, president of the Americas for Visa. He says consumers tend to use credit cards for big-ticket discretionary purchases — the very things people have been cutting back on.
"A higher percentage of their spending is going towards what we would consider to be nondiscretionary, so when they've done that they've been using their debit cards more often," Sheedy says.
When it's best to use a credit card:
- Big-ticket purchases
- Major electronics and other items where your credit card may extend the warranty
- Items you think you may return
- Online shopping
When it's best to use a debit card:
- Everyday purchases like gas, groceries and eating out
To protect yourself from fraud, Consumer Reports says:
- Don't use your debit card online.
- Don't use your PIN when checking out at stores. Instead, process your debit card like a credit card transaction, and sign a receipt.
- Make sure your debit card is only linked to your checking account. If someone gets hold of your card, you don't want him to be able to raid your savings.
In the past year and a half banks have also cut credit limits, closed credit card accounts and raised interest rates. It's not clear just how much of an effect that's had on the overall trend.
"People are more angry with their credit cards than they used to be," says Chris Fichera of Consumer Reports. "People don't want to charge as much as they did in the past. They want to keep a closer eye on their money. So, debit cards do make more sense in that regard, but you have to use them wisely."
Credit Versus Debit
Fichera says credit cards still have some advantages. They tend to provide better fraud protections and sometimes offer extra value like extended warranties on electronics purchases.
"We generally recommend that people use debit cards for everyday transactions — groceries, gas, things like that," Fichera says. "And use credit cards for the big ticket items — TVs, computers."
These are items where there's a chance you might have a dispute with a merchant, or you might want to make a return.
"With the debit card the money is gone immediately, so you might have less recourse," Fichera says.
Visa and MasterCard don't care which payment method shoppers use. As long as you're using plastic, they're making a little money on each transaction.