Debit Rules the Day

Consumers prefer to pull out a debit card before cash or credit.

When it comes to our preferred method of payment at checkout, it turns out cash in no longer king – and it’s not been replaced by credit either. In fact, the preferred payment solution for most Americans is debit cards, and we’re using them more now than ever before. That’s according to a study released by the debit and ATM network PULSE.

Here are some fun facts about how the average American uses their debit card:

  • Their debit card is used 21.2 per month
  • They spend about $9,291 per year on debit
  • The average debit purchase is $37
  • However, 1/3 of all transactions are for less than $10
  • They only visit the ATM about 2 times per month

All of those stats are at all-time highs in the 12 years PULSE has been doing this study – minus ATM usage, which is down from 3.4 times per month in 2005. So consumers are pulling out cash less frequently – possibly due to the increasing ease of just swiping a debit card in the checkout line.

 
“This increasing trend in debit use is good news because it means consumers are opting to spend the money they already have rather than borrow by putting those same purchases on credit,” says Gary Herman, President of Consolidated Credit. “Debit is essentially becoming the best option for the budget conscious who in years past would have opted for cash instead.”

Debit is worth it to save on interest

As cash becomes less prevalent and people migrate to using electronic payment options more, the risk is that the average American household will end up spending more and throwing money away if these purchases are moved to credit instead of debit. That extra on the top comes from interest charges and fees that get applied to credit purchases.

For example, let’s say that average yearly debit spend of $9,291 was put on a credit card instead. The card has a modest and average interest rate of 14% APR and you stick to the minimum payment schedule to pay off the debt. It would take 245 payments to pay off the debt in-full and during that time, the card user would pay an additional $6,836.72 in interest charges.

So by using a debit card rather than a credit card, you’re saving money over time.

Credit is only better if you strategically manage the debt

Of course, credit card companies offer plenty of incentives designed to encourage you to pull out their credit card rather than your debit card. The most popular way these days is with reward credit cards – particularly those that give you a certain percentage of cash back on certain purchases. There’s even a few cards specifically designed for small incidental purchases like those where you spend less than $10.

The catch with these reward programs is that you have to pay off your balance in-full at the end of every month if you want to actually make those rewards worthwhile. Otherwise you can wind up paying 13% interest to earn 5% cash back. In other words, you end up spending more instead of getting anything back.

“Reward credit cards are only worth it if you have the budget and stable outlook necessary to pay off your balances in-full every month,” Herman confirms. “Otherwise, you’re just better off to use a debit card or cash. But whatever payment method you choose, you have to take steps to minimize things like added fees and interest charges. Even debit cards can be more expensive if you’re footing the bill for things like ATM transaction fees and overdraft fees if you’re not maintaining a balanced budget.”