The key thing to remember about credit cards is "credit", "CREDIT" You can have literally no money to your name but if you have a credit card, you can spend up to whatever the balance is. Someone is loaning you money, someone is taking risk that you will pay. You are protect by government regulation so that if you file a dispute, you are protected until it's proven that you actually did spend the money. With debit card or FedNow, you need to have the money, you don't have dispute protections.
The main reason I use credit cards is having my account compromised.
It happened once to my debit card when I was 20, and I went without food for a few weeks. Thank God for food pantries.
Ever since, I've used MasterCard for everything. They might be an evil monopoly, but fixing fraud is stupendously easy, and becomes not my problem with one mouse click.
When a dispute is filed the bank will issue a provisional credit the same or next business day if the dispute meets certain criteria. I forget the exact details on when you do and don't get a provisional credit right off the bat but basically boils down to the only situation in which you wouldn't get a credit would be where it's not a dispute over whether the charge was authorized but one over whether the goods/services were delivered because in those cases the bank has to give the merchant a chance to tell their side of the story or make good or whatever. I forget if this is a Visa/Mastercard network policy (they homogenized the rules between credit/debit cards awhile back and it might have been part of that) or a regulatory one but the end result is that you're only without money for a day if there's an unauthorized charge.
They do but usually your money is gone until the dispute is resolved. With a credit card, some fabulously wealthy company’s money is gone and literally nobody is gonna cry over that.
Well sure you have, you've had your available credit reduced by that amount. If you have a surplus of cash or available credit then this makes no major difference in either case. If you don't and then try to make a transaction, you get whacked with penalties etc.
If you have money in your bank account, you can swipe your card at the store and get stuff. If you have available credit, you can swipe your card at the store and get stuff. These are both money.
In the second case you may have borrowed the money and are then expected to pay it back later, but in general this is the method to be avoided unless you have a need for it, because borrowing money incurs fees/interest charges (whether directly or indirectly).
Unless if you only have enough available credit for a couple of purchases (e.g. maybe your first credit card or bad credit credit card), this distinction is pointless. Almost no fraud will touch the thousands of dollars of available credit, especially if on different or multiple cards.
Losing some available credit is not even a nuisance for most people who have any semblance of decent credit history.
Regardless, your last paragraph is also wrong. If the price is same when using a debit or credit card, it's better to use the credit card. You can keep the money in your account (and could be used in event of emergencies) and also earn interest until statement due date. There are no fees or interest when you pay your statement balance in full every month, which means you've gained 5% interest for about a month's worth of credit spending in your HYSA for the same price.
That second paragraph is just as wrong as yours. You're both right in some cases. The average American has several thousand dollars of credit card debt [1]. They are paying interest.
Check those numbers. I looked at the original data, and it seems that in the report you linked, debt is defined as a credit card balance.
I don't know about others, but I always float thousands on my balance and pay it off by the end of the month; the payment is all automatic. Often, for large sums, I pay it off online right away when I get home.
In my opinion, this is not debt—as long as you have the money, don't overspend, and pay it off within the grace period of 30 days, as long you are using the credit card as an intermediary for convenience and as a service that gives you various protections. There is benefit to the customer.
Stepping back, I think this is getting silly. The upstream comment stated to prefer cash over credit to avoid fees. You called that wrong and state there is a benefit to using credit. My claim is that you are equally wrong if the first person is wrong because interest and fees are often payed (data in peer comment)
If someone has cash, and is using credit to float the amount monthly, is there even really a distinction? If so, then the first commenters second paragraph could be amended to state to prefer credit only if you have the cash. Which is exactly what you are arguing.
I chafe at this thread since you are eager to call others wrong while actually arguing the same thing in the end.
That there is a benefit, can be a benefit to CC users is not in dispute. Meanwhile, the implications and practical effects of a duopoly are the interesting things. Notably, fir example, all prices being 3% higher. Yes that can be offset by cashback rewards, but sometimes is not and is certainly not when paying cash.
I am not calling others wrong, I am calling the definition incorrect.
A credit card balance during the grace period is not a debt - it is no different than paying by check - it is not more than a delay between a purchase being reflected on an account. That's all.
Only the balance after the grace period should be counted as a debt if we are using that term to talk about a population being more or less indebted than say X number of years ago etc.
A credit card balance is simply a form of bank account for large number of people.
> I am not calling others wrong, I am calling the definition incorrect.
Yet you wrote: "Regardless, your last paragraph is also wrong". The last paragraph was stated borrowing money was to be avoided. Nothing about debt vs balance.
> A credit card balance during the grace period is not a debt
This conflates "long term debt" with "short term debt." Debt generically refers to current debt, which might be short term or long term.
Second, by way of counter example, imagine a Credit card with a $100k balance. Your net assets are zero, and income are zero - if you max out that card - you have $100k of debt. Go to a creditor, tell them that $100k balance is actually zero debt because you have yet to repay it and have yet to pay any interest. I suspect you would be laughed at or charged with fraud. That $100k balance is not $0 in debt. Income actually does not matter to that statement. It would only matter if you qualify it as long term or short term debt. This is exactly why creditors often look at debt to income ratio, and not just absolute debt.
> Only the balance after the grace period should be counted as a debt if we are using that term to talk about a population being more or less indebted than say X number of years ago etc.
I agree that would give a more accurate picture of long term debt. Though, most redit card debt does represent long term debt. It must because the average balance exceeds the average income.
> A credit card balance is simply a form of bank account for large number of people
Indeed, but a large number is also small fraction of a giant number.
Let's step back. The second paragraph you said was wrong stated to essentially avoid borrowing money. You said (paraphrasing) "nuh-uh, credit is good for floating money." My retort is while that can be the case, for the majority of Americans credit cards are borrowing money. For a sizable and privileged minority, it is a way to purely float a balance. To then argue because of that, credit cards are a net good for the majority of people seems very flawed. That is further predicated that the interchange fees that are always payed are also always offset by credit card rewards programs. The predicate is flawed, and the assertion that for a majority credit is good because it just floats money is not supported by the data.
Credit card debt and credit card balance are the same thing.
> I don't know about others, but I always float thousands on my balance
This is the operative part. People on this forum tend to be in tech, and floating thousands is possible. A quick google search showed average US income is 60k/yr. Less 10k for taxes, less 20k for housing, that allows a float of less than 3k per year. The source previously stated an average debt of 6k, which is a balance more then the monthly income, and ergo is being carried over.
Looking for more direct data on how many Americans are paying credit card interest, I found this data:
"Half of credit cardholders surveyed in June (2024) as part of Bankrate's latest Credit Card Debt Survey said they carry balances over month to month. That is up from 44% in January – and the highest since since March 2020, when 60% of people carried debt from month to month" [1]
I thereby stand by my statement that your second paragraph was equally wrong (and equally right) as the second paragraph you were calling wrong.
Credit card debt and credit card balance aren’t the same thing, in practice.
If I had long standing debt on a credit card, I’d be paying an extremely high interest rate on that debt even with a >800 credit score.
If I have a balance that’s completely paid every month, I pay no interest on that “debt”. And while that money is floating, it’s in a 4.5% high yield savings account (Sallie Mae).
In the former situation, I am losing money. In the later, I’m making money. (Compared to paying with cash / debit).
In what percentage of total cases and to what fraction of the total balance? Please bring citations. This strikes me as a very glib, noisy, and unsupported claim.
> Credit card debt and credit card balance aren’t the same thing, in practice.
In practice, but pedanticatically speaking they are the same. If I asked, how much credit card debt do you have, you shouldn't say zero just because you likely will pay off the balance before the grace period expires.
EG:What is the balance on your mortgage? How much mortgage debt do you have? (The latter implies across all mortgages. That is the extent to which there is a distinction)
Pedantics and straw-manning aside, the main point, supported by citations - is that most americans are not paying their credit cards off, in full, every month.
This subthread is about fraud. If someone steals your debit card the money is gone from your bank account until the dispute resolution has happened. In contrast, if someone steals your credit card you dispute the transactions and until it's resolved you just have a lower available credit. But the point is you had money in your bank account anyway and were just paying with the credit card for the fraud and/or rewards reasons and that money is still there.
A debit card with 100$ on it can only be frauded to 0$.
A credit card with 100$ on it can be frauded to -10'000$ or whatever the limit is. You think a fraud will stop before reaching the limit?
If you have a debit card with no money, but a regular income, the bank will be happy to issue a new credit card to you. Where I live (EU), I can request it via internet banking and it takes ~3 days until the card arrives in the mail. Virtual cards are available immediately.
> You think a fraud will stop before reaching the limit?
Yes. Credit card issuers block transactions they believe are fraudulent. Being liable for fraud motivates them strongly.
Anecdotally I've had a couple of credit cards compromised in my life. On each occasion the thief got less than a couple hundred dollars before being detected.
A thief will usually try a couple smaller transactions first to see if the card is good. Large unusual transactions get flagged for review quickly.
> Credit card issuers block transactions they believe are fraudulent.
They do? I never had a CC and I don't know if that's the case where I live.
Maybe I'm being paranoid, but I don't trust banks: I don't trust them blocking fraud transactions, and if they do, then I wouldn't trust them to not block my transactions and leave me stranded on vacation somewhere, and finally I don't trust them to revert fraud transactions if they ever happen.
> I wouldn't trust them to not block my transactions and leave me stranded on vacation somewhere
I have multiple credit cards. And a debit card, and cash. It's advisable to notify the credit card company if you plan to travel. Most card websites and apps have a feature for this.
> I don't trust them to revert fraud transactions if they ever happen.
This might be a European thing. In the US credit card issuers are liable for any fraudulent transactions by law.
> If you don't and then try to make a transaction, you get whacked with penalties etc.
No you don't. Your card just gets declined.
This seems like a weird argument anyway. Sure, in some cases you will get hit with credit card fraud and will also at that time have no further available credit, and no cash on hand. But I expect that's the exception, not the rule.
If we're talking about debit card fraud, every single time that happens, the money will be gone while you're waiting for the dispute to be resolved.
Credit cards work how your agreement says they work. If you exceed your credit limit they can offer to extend you more credit but charge you a fee/penalty for doing that. Conversely, you can have a bank that will decline debit transactions instead of extending overdraft protection.
Credit card companies are less likely to extend overdraft protection, because if you're already at your credit limit they may not want to risk lending you even more money, but that's why there's typically a fee to offset the risk when they do offer it.
> If we're talking about debit card fraud, every single time that happens, the money will be gone while you're waiting for the dispute to be resolved.
The amount of money you have available to you is the sum of your positive balance and your available credit. If you have $1000 in available credit and $1000 in your bank account, you can spend up to $2000. If you have to dispute a new $100 transaction, you can now only spend $1900 more dollars until the dispute resolves, regardless of whether the dispute was on your credit card or your debit card.
And even if you hit your credit limit, the money is still in the account, so you can spend it -- just not by using your credit card -- but you can still go to the ATM and get cash, for example. You cannot spend it when fraud happens with a debit card.
You can very much get a cash advance against a credit card, if you require physical cash. But that's an extremely unusual outlier anyway -- needing enough physical cash that it exceeds the balance of your bank account. If you had a $1000 balance and then have a $100 dispute and have to immediately make $1000 in payments, you don't need a cash advance unless over 90% of the payments are required to be in cash, because the remainder can be on credit.
Suppose you have a $10,000 credit limit and $100 in your bank account, and then you have to dispute a $100 transaction while also needing to buy something else that costs $20. If the dispute is over your bank balance then you put the $20 on your credit card. That causes you to have a $20 credit card balance, but in the alternative you have a $100 credit card balance -- and may or may not win the dispute.
We're arguing about credit card versus debit card. If you decide debit cards are better and, as a result, you don't have a credit card, you don't have that $10,000 credit limit.
Also, available credit limits are much less valuable to me than actual money, so I will preferentially risk part of my credit limit before risking actual money. If the bank reduced my credit limit by $1000, I wouldn't mind nearly as much as if they reduced my checking account balance by $1000. I think most financially responsible people would feel the same way. Likewise if the bank increased my credit limit by $1000, I wouldn't be nearly as excited as I would be if someone gave me $1000 in actual money.
If it's just a question of what you're going to use for one particular transaction, sure, you can use your debit card sometimes. I do.
And part of the issue is that credit lines and actual money aren't perfectly fungible. For instance, I can't use my credit card to pay my credit card bill. I also can't use it to pay my mortgage.
Scheme rules mostly require issuers to extend a zero-liability policy to consumer debit cardholders.
Even if they wouldn't, there is a little-known debit counterpart to Regulation Z (which is the federal regulation affording you all the nice credit liability protections you might be used to) called Regulation E:
As long as you notify the issuer/bank within 60 days, your losses are also capped to $500. But since most banks don't want to lose a customer over a deductible in an edge cases (usually they can recover the funds themselves via a chargeback), the real loss is usually zero.
I think we agree on the outcome, but not the mechanism.
I'm saying that debit protections have nothing to do with the issuer "feeling generous", and a lot with market forces and legal regulations, just like for credit cards.
I fully agree with you & upstream - on the other hand there are specific (~local) shops which I use often and I'm 99% sure that I would not need the Credit Card (CC) protection with them, so having a CC-alternative for those cases is nice.
Credit card companies make absurd profits. This means: In expectation, you are paying more than you benefit. It's basically an insurance. Buying insurance only makes sense for sums so large they could easily bankrupt you. But credit cards are used mainly for small to medium sums.
Visa made $17-$18 billion in profits in 2023 for handling transactions worth $12 trillion. Is that an absurd number for maintaining an instant payment system on a planetary scale?
It would be an absurd amount for a payment system, yes, because we already have a secure worldwide communications network that we pay to maintain and there's nothing special about Visa's encrypted bits.
The value that credits cards provide isn't the network, it's the insurance (chargebacks). And while I appreciate payment insurance when I'm paying for an expensive object from halfway around the world, it's unnecessary overhead when I'm buying a bagel in a cafe.
> It would be an absurd amount for a payment system, yes, because we already have a secure worldwide communications network that we pay to maintain and there's nothing special about Visa's encrypted bits.
Sure there is. Someone had to build the all the software that deals with those encrypted bits. Someone had to scale it up to handling tens (hundreds?) of billions of transactions per year, each one approved or declined within a few seconds.
If you think it costs zero dollars and we can just say "the internet is our payments system" and call it a day... well, I don't know what to tell you. Your expectations are so far from reality that I'm not sure we're going to have a productive discussion.
> If you think it costs zero dollars and we can just say "the internet is our payments system" and call it a day... well, I don't know what to tell you.
If you can somehow manage draw this conclusion after reading my comment, then I'm not sure we're going to have a productive discussion.
The maintenance costs are probably closer to zero than to the current profit margins of the credit card companies. FedNow transfers are almost free after all. $0.043 per transaction according to Wikipedia.
So if we lived in a perfect hacker paradise where there are no company profits or private property, what would be reasonable operating costs for maintaining an instant planetary payment system – including fraud insurance? Assuming the same amount of transactions as today?
I don't know, but in Europe the visa/mastercard charges are capped at 0.2% for debit cards and 0.3% for credit cards. This seems to be enough for them to continue operating.
Are there any European-based credit cards that have entered and competed in the American market, with it supposedly being so lucrative compared to Europe? I'd assume someone would've made that jump?
I can't imagine Visa would continue to operate in Europe if it wasn't profitable, and I'm not surprised that there are no European competitors considering Visa has the highly profitable U.S. market to buoy their position in Europe.
I cannot speak for other country but VISA bought the Carte Bleue system in France un exchange of following all regulation and not upping the fees.
For two decade before that and since then, all carte bleue are visa and vice versa.
Mastercard exists here as a premium level card giving you tons of bonus, and usually fee with your account. Eg my bank account online is free and almost no fee for anything (I pay 9e for extra phone and wallet insurance and next day replacement), and as long as I keep more than 24k in the various accounts and give me a Gold+ visa card and a mastercard with 1% cashback.
Building a new network from scratch would be extremely expensive with limited chance of success.
Visa can certainly remain profitable even with the fee caps but I find it hard to imagine that they would try to enter the EU market if they had no presence in it and there were already several established competitors there these days.
I do, in fact. Unfortunately, the push for cashlessness has made this impractical in many places, and as mentioned elsewhere in this thread the cost of handling cash isn't zero, which means that direct transfers via a FedNow-like mechanism have the opportunity to reduce costs for everyone involved.
The actual lender for a CC is not Visa, it's the associated bank that's backing the CC. So the redistribution of wealth is occurring on the banks books not Visa's.
Sure but AFAIK FedNow is not going to hold funds or authority to payback or revert "fraudulent" transactions?
If I lend out $X dollars but my client says the loan was accessed fraudulently then who pays for this loss? The bank, the payment processor (FedNow/Visa), the customer, or the vendor?
These are called ACH return codes and are similar to disputes on credit card.
Liability is on the receiving or the originator institution. But in practice, it depends on the contract with the “processor”. Many Pay By Bank “processors” offer a guarantee model to cover these returns. Otherwise, liability is typically on the merchant.
However, Nacha is beginning to iterate on their return codes to better fit the e-commerce use case and clearly define liability.
The bank usually handles initiating reversals, not the payment processor. Though FedNow may not have the API to facilitate them easily, not sure on that.
The funding method (credit or debit) is in theory completely orthogonal to the dispute settlement mechanism and legal liability provisions of a given payment method.
One exception is that for debit, you're possibly out the money until the dispute is settled; one mechanism to avoid that would be a regular overdraft facility (in the European sense, i.e. with a listed interchange fee and not a fine-like flat fee like in the US) for credit-worthy account holders, and a refund of all interest incurred due to eventually successfully charged back payments.
I'm not charged interest on chargebsck balances that are ruled against me right now on my credit cards. You seem to be proposing that I would now need to pay interest on chargeback balances, and if I win, then it's waived?
That seems like a lot of risk for me, if I happen to lose a chargeback for some reason.
What is correct, though, is that while you wait for a credit card dispute process to be resolved, you have not spent any money, and still have that money in your bank account. But if you want to dispute a debit card charge, that money is gone until the dispute is (hopefully) resolved in your favor.
The only way to regulate that problem away is to require debit-card-issuing banks to preemptively return the money to an account immediately after the account holder disputes a charge, which... I dunno, maybe that's not a terrible idea. Or maybe it is.
... What? In France I can vouch that both personally and professionally, a charge back at caisse d'épargne, banque populaire, société générale or crédit agricole will take you less than 5 minutes on the phone.
I would be interested to know which country and bank gave you a hard time to do charge back
I've had to file 2 chargebacks so far with N26. First one took two weeks, and was possibly resolved by the merchant refunding me after getting pressured. And the second one I filed a month ago and hasn't even been confirmed to be investigated into.
UPI requires a one time password sent to your phone to work (via an app or text message, app being obviously more secure). Now, if you lose both your phone and your card, you would need to apply for a new card - hopefully your phone is password protected.
