Auto - Pay: Credit Cards versus Debit Cards and ACH
So, the debate has become all about whether to use a debit card, credit card, or an ACH (automatic electronic check) to make these payments. I will tell you that Dave Ramsey's stance is pretty much that you should have already cut up your credit cards and never go into debt again. I like that idea because it is very easy to lose discipline when a credit card is available.
But here is where my opinion on credit cards differs from the Ramsey doctrine. I am putting on my cybersecurity hat for a moment on this one and looking at it strictly from a security viewpoint. For one thing, I do not like giving out my routing and account numbers to anyone, especially sending things through the mail. Mail can be easily stolen or lost, then your account information is out there for anyone to pick up. Even a "VOIDED" check can be misplaced or stolen, and your routing/account numbers can be easily taken. That opens a variety of ways that your accounts can be fraudulently accessed. Entering your information on a secure website reduces that risk, but then if their system is compromised, your account information (as opposed to just a card number that a thief cannot tie to a specific account number) is compromised. It's not like bank accounts can be easily closed and new ones started.
So now we're down to using either debit cards or credit cards. If the debit card linked to your bank account(s) gets compromised, then money comes out of your account until you contact the bank to turn off your card and so that they can issue you a new one. Not only that, but if all or part of your money is tied up while they investigate, then the money you were going to use to pay for housing, food, utilities, and such is locked up unless you have some other liquid cash in other accounts. Even if it turns out that the investigation reveals that the debit card transactions were fraudulent, your bank policies may still hold you responsible for a certain amount. But as an example, seen in the video below, your bank account may end up being locked up and/or have severely reduced funds while the bank investigates and clears it up.
Using a credit card is much safer and more secure. Period. If your credit card is compromised, you can simply have the card turned off, but in doing so you are not locking up the money that you need to pay your immediate household and living expenses. Additionally, credit card companies do not hold you responsible for charges that you refute. While you're waiting for your new card to arrive, you can still pay bills, buy gas, and live your life. Once the new card arrives, you simply update all of your services who are regularly charging your card for your monthly bills, subscriptions, charities, and other accounts. Some of the additional benefits that I have experienced form using a credit card to pay monthly bills, such as my cell phone bill, my phones are insured against damage or theft by the credit card company through my cell phone provider.
Using a credit card does take discipline. Credit card interest rates are pretty high these days, and if you run up a large unpaid balance, then you are right back in debt for a lengthy period of time. I pay my credit card in full each month. I haven't paid any credit card interest in years. In fact, now that I am retired, all of my pensions and retirement money come to me once a month. Since I keep a constantly updated monthly budget (I'll be happy to show you how), I know exactly how much my bills will come to each month, including a pretty good estimate of how much I will spend on gas, and I simply pre-pay that amount on my credit card each month. In fact, virtually all of my bills are paid with automatic payment systems, so I simply pre-pay my credit card account, and those amounts are then charged to my credit card.
Since "retiring" from my old 9-5 job, my new endeavor is building a coaching practice that allows me to help main-street families earn more income, become properly protected, debt-free, and financially independent. Ask me how I can help!
