Why Have Debit Cards Replaced Credit Cards?

According to the 2010 Federal Reserve Payments Study, debit card use in the United States had exceeded credit card use as of 2006. Debit cards are typically tied to a checking or savings account, while credit cards normally offer a revolving line of credit. As a result, debit cards can offer several advantages, particularly for credit-challenged consumers.

Consumer Distrust

Credit card companies often implement tactics such as hidden fees, raising interest rates and enticing marketing campaigns as a means of increasing their revenues. As a result, consumers who have incurred amounts large credit card debt may blame the credit card companies for their predicament, at least in part. Consumers who have fallen behind on their credit card payments also are usually hit with significant late fees, which can create an image of credit card companies as being unsympathetic during difficult financial times.

Forced Discipline

Consumers committed to debt reduction may prefer debit cards because it forces them to spend within their means. Unlike credit cards, which allow consumers to spend freely up to their available credit limit as long as they pay a relatively small monthly minimum amount, debit card use is limited to the amount the consumer currently holds in a bank account. Consumers who are tempted to make impulse purchases of items they may not really need may have to develop more thrifty spending habits.

Necessity

For some people, using credit cards may no longer be an option. Due to circumstances like foreclosures resulting from the housing crisis of 2008 and 2009 and bankruptcies stemming in part from credit card abuse, some individuals may no longer have access to credit cards. Debit cards can provide the same convenience of use as credit cards, although their purchasing power is typically less due to the need to have the available cash to cover the full amount.

Budgeting

Unlike credit cards, debit cards can help consumers keep a close eye on their finances, which can help them maintain a budget. When consumers use a debit card for regular expenses like groceries or to pay utility bills online, the amount is reflected in the monthly statement they receive from their banks. While credit card companies also list a monthly purchase history in their statements, the impact may not be the same as nothing is actually deducted from a bank account. As a result, it can be more difficult to comprehend how much is truly being spent.