Credit Material is a public blog full of information regarding Credit, Debt, Loans & Financial Topics.Taking a break from Credit vs. Charge Cards, I want to touch on the choice between credit and debit cards. You would have trouble opening a bank account without receiving an ATM card that doubles as a Debit card. Typically, these cards are accepted anywhere a Visa is.
The USA Today, recently posted a rundown of the distinctions between credit and debit cards with a style that recalls their usual talent for distilling subtle distinctions into colorful bar graphs.
The article begins by pointing out that there were actually more debit card transactions last year than there were with credit cards. The author offers many possible explanations from the failing economy to the preferences of the younger generation. I think a lot of people have had it with their credit card company and they see debit cards as a better way to go, but there is also more to it.
Here is my take on some of their advice regarding debit cards:
They say that: “Make sure the funds are there. A $6 sandwich can wind up costing $46 if you don’t realize your checking account is flat-lining. Most merchants no longer reject a card if you have an inadequate balance; instead, you incur a hefty overdraft fee.” This is true, but you also must add up the interest that you might be paying on your credit card if you carry a balance. The interest can be massive if you carry a balance, as it occurs from the moment you make the transaction. Worse yet, with double cycle billing, you end up paying interest even after you pay for something. Fortunately, this practice will be outlawed when the CARD act goes fully into effect in February.
They also mention that “A security breach could mean trouble.” What this means is that charges that go through on your debit card, for better or worse, is like cash coming out of you bank account in real time. If you card is stolen, you have a good chance of coming out of it without much harm. Unfortunately, if the goods or services you purchased are not delivered, you are essentially in the same position you would be if you had paid cash. There are no charge backs with debit cards like there are with credit cards.
They bring up the subject of Usage Fees. Apparently some debit cards charge you a fee for each use. Run, don’t walk, if someone offers you such a card.
The article also brings up the subject of account blocks. I can’t tell you how many consumer complaints I have read about a hotel or rental car company freezing a cardholder’s funds with an account block. Do not ever rent a car or stay at a hotel with a debit card. A huge chunk of your bank account will be frozen faster than a Colombian drug lord, only to be released at some unknown later date when the hotel or rental car company feels like it. Should they decide that you touched the minibar or left a scratch on the bumper, and you will never see your money again. At least with a credit card, the burden of proof is on them.
What About Credit Cards?
They touch on the usual litany of possible expenses such as late fees and interest charges, no surprises there.
They point out that credit cards can “They tempt you to buy more than you can afford.” and to “Be careful with rewards” as they also can encourage overspending. Now we are down to the meat of the matter, and it is not that different than the Charge Card vs. Credit Card debate. The difference is the psychology of the cardholder. In one case, you have debit cards that have few if any of the features of credit cards such as charge backs and interest free float, yet people are tempted to purchase more than what they can afford to pay off, thus incurring interest and/or late fees. On the other hand, debit cards lack those features, have greater security risks, an can even result in your funds being frozen when you are traveling. Nevertheless, people like debit cards as it is a financial device that allows them to control their spending.
Where I Stand
I am not a debit card fan. One reason is rewards. Yes, there are some reward debit cards, but their programs are shadow of what you find with a good reward credit card. I can recall using them at Costco, long ago before they accepted Amex (or perhaps when I didn’t have an Amex, I can’t remember). I have also used them overseas to avoid foreign transaction fees. Other than that, I don’t see any need to ever use my debit card.
Because debit cards lack many of the features and consumer safeguards of credit cards, they also cost both the banks and the merchants less when you use them. Another big expense for the banks is rewards. In realizing these additional costs for credit transactions, banks are increasingly promoting debit transactions in order to increase their profits. For me, those efforts fall on deaf ears as I prefer paying my credit card balance in full and reaping rewards. For others, debit cards offer a stress free way to stay out of debt.
To each his own.
Photo: EssG
Investing in gold and other precious metals is one of the best ways to maintain your footing in an otherwise unstable economy. But while gold, silver, platinum (and their lesser known cousins ruthenium, rhodium, palladium, osmium, and iridium) have maintained their status as solid investments, you need to be wary of unscrupulous dealers and the many scams they perpetrate on unsuspecting investors.
Scams include anything from selling gold plated jewelry to polished hunks of metal that are made to look like gold bars. Selling bullion ETF’s and making customers believe they are buying real gold or silver when in fact this is not the case is another scam. Some companies are not even legally registered to sell precious metals. Last year, the Iowa Insurance Division (IID) issued a cease and desist order against a NJ based company called National Bullion Investors, LLC. The company was not legally registered and the investor who bought from them lost $5000. IID also took action against a Florida based company called Barron Trading Group for similar reasons.
If you are buying precious metals in the form of commodity futures or option contracts, the United States Commodity Futures Trading Commission (CFTC) recommends investors be careful of companies selling these financial instruments with promises of big gains and little or no risk attached. This is considered misrepresentation by the offending company and requires legal action. Companies selling these and other varieties of metal investments reach prospective investors through radio, television, newspaper ads or websites. Some even make cold calls to customer pushing for the purchase of gold, silver or platinum. According to the CFTC (cftc.gov), these companies will ask for various forms of fees such as commissions, interest charges, loan origination or storage and shipping fees that are not disclosed up front.
The sales pitches businesses use are not a problem, the problem starts when they overstate their ability to predict where the prices of precious metals will go and how little the customer is at risk of losing. When a company approaches you with an elevated sales pitch, talks down risk exposure and does not disclose fees from the start, these are all red flags.
Also, a big giveaway is the storage location of the metal. If the company refuses to clearly state where the metal is stored or gives you a runaround when you ask about it, there might be a problem. If the company you want to buy from does not say you are buying on “margin” or that you will have to send them additional funds if the price drops, start looking elsewhere.
Always search a company’s background in the Better Business Bureau (bbb.com). Here you can find out how reliable the company is, whether it has performed well in delivering services and products to customers and what complaints, if any, have been filed against them. The North American Securities Administrators Association (NASAA) can also assist your research. It is an international organization whose goal it is to protect the investor. For investors who have any issues regarding a scam, who want to look for information or wish to locate their state regulator and contact them directly, visit nasaa.org. You can also contact the National Association of Attorneys General through naag.org for updates in laws or issues that might affect your investments or for questions and concerns regarding scams. Questions about futures compliance could be addressed to the National Futures Association and to find out if your broker or firm is registered with the Commodity Futures Trading Commission (CFTC), go to nfa.futures.org/basicnet/.
If you are looking to buy coins, you are better off buying from a legitimate source like the US Department of the Treasury through usmint.gov. Gold bars can be purchased through a number of accredited manufacturers, for more information, go to Gold Bars Worldwide. Gold Bars Worldwide is sponsored by the global gold advocate World Gold Council gold.org that also gives research and statistical information on gold.
Amerigold is a known seller of gold, silver or platinum. The Better Business Bureau rated Amerigold with its highest grade of A+ for operating in a trustworthy manner and making good faith on resolving customer concerns. Silverseek.com and platinumguild.org are also reliable websites to look for information or retailers on silver and platinum.
Diversifying your portfolio with precious metals is a good option, but it has to done cautiously and after thorough research. Time of course is essential. As Paul Mladjenovic, the author of Precious Metals Investing for Dummies put it, “In a world of precious metals, the longer the term, the better your chances become for building wealth.”
Other resources to look into:
Investing in Gold: Invest.gold.org
National Mining Association: nma.org
International Monetary Fund: imf.org
Gold Anti-Trust Action Committee: GATA.org
