THE DOWNFALL OF CREDIT CARDS | HOW TO PREPARE

What's up you guys? It's Graham here. So as I'm sure many of you know by now, I am a huge proponent and believer in credit cards. I think they're a great way to leverage your money, get purchase protection, get cash back, collect points, travel for free, and boost your credit score at the exact same time.

However, we could start to see quite a few new changes and alternatives taking place because a new filing has just found that recently people have been shifting away their credit card spending into something else. I have a feeling if this trend continues, we could see a brand new wave of offers and incentives towards something entirely different than what we’re more used to.

The reality is that even though credit card rewards can be absolutely incredible when used correctly, the only reason that credit card companies can afford to make such big payouts in the first place is because so many people don't use their credit cards correctly. They'll either leave a balance on the card and then pay some extraordinarily high interest rate, or they'll pay an excessive annual fee for benefits they never use. Or they're gonna be swiping the card often enough to generate processing revenue to remain profitable.

But if this new change happens, like I'm about to show you, it could mean a much different outlook in terms of how people spend their money, what they use instead of a credit card, and a much different reward tier than we're currently used to bringing us the new potential alternative to credit cards. Which, by the way, right about now, I need some sort of clever segue to ask you to smash the like button before I begin the video.

So here's a video of a kitten playing with the like button and trying to smash it. So if you enjoy kittens playing with like buttons, make sure to do your part and make sure the like button turns blue. And of course, with that said, let's begin the video.

Okay, so these are the findings. Business Insider just published an article citing that consumers have been abandoning their credit cards and pushing a hundred billion dollars of spending on—wait for it—debit cards! That's right. They found that credit card usage declined by 21%, while debit card usage increased by 12% year over year.

That is a far difference from what many people originally anticipated, which is that during a pandemic many people would have to rely on a credit card to get through and not spend their money on cash or debit cards, which is what actually happened. Now, this executive of North America said that there's a consumer psyche of not spending someone else's money, but spending my own money.

This was also seen during the 2008 financial crisis, the 2018 government shutdown, and the initial trade negotiations. Every single time there is economic uncertainty, people shifted their spending towards cards. But this time was also a major shift away from cash because people wanted to spend their money online and didn't want to physically handle money while spending. Hence the surge of debit card usage.

And I'll be honest, debit cards lately have been getting a lot better. For the first time in pretty much ever, debit cards have begun offering rewards similar to that of a credit card. And for anyone wondering, here are some of the current offers out there.

First, we got the Bank of America debit card. As much as I dislike Bank of America in general, I have to say this one is actually pretty decent. That's because, one, they have a zero dollar liability guarantee where they will refund fraudulent charges within the next business day if your card is lost or stolen. So, typically refunding money spent on a debit card is rather challenging, but if they could get the money back to you within the next business day, that's pretty quick.

Two, they'll allow you to virtually lock your debit card if you lose it and then unlock it if you find it. I've got to say that's a really smart feature, and I'm surprised more cards aren't already implementing this as well.

In general, three, they also offer a round-up feature to help you save by rounding up the cost of every item you buy to the nearest dollar and then depositing that difference into your own savings account. So even though this is not cash back and you're still spending the money, it's good for people who wouldn't ordinarily save anything anyway.

In a way, it's a bit like the investing app Acorns, which just rounds up all of your purchases and then invests the difference on your behalf. The Bank of America's version of this is not as good because the money just ends up going back into your savings account, but it is better still than nothing.

And for four, they're gonna be offering you up to fifteen percent cash back on certain charges depending on what you select and what the promotion is. This works when you log into the Bank of America app, you select the deal or the promotion you want to take advantage of, and then you use the card as you would normally.

Now, even though it's not a good idea to go out of your way to spend money just because you could save a little bit of money, it is a good idea if you were gonna spend the money anyway. You may as well get something back than nothing.

Now, even though this is nothing compared with what some credit cards already offer, debit cards are making a slight resurgence, and things only get better from here because, number two, we have an all-time favorite of mine that I mention here all the time on the channel, and that would be Discover Bank.

I usually recommend their credit card, but today is something a little bit different. I want to mention their debit card, which has also begun offering you cash back on your spending, which is typically a bit unusual for a debit card.

Now, I like Discover Bank a lot because they have always gone with the “no fee” approach. What this is really no different. Almost everything within their account is free, and they're offering you one percent cash back on the first three thousand dollars of your purchases every month, which works out to be an extra thirty dollars.

Now, even though yes, there are way better options out there with credit cards to give you money back, the fact that debit cards offer you anything in the first place is rather astounding, considering debit cards make far less money for these banks than credit cards do.

In addition to that, they're also going to be offering you the freeze option just like Bank of America. So again, if you ever lose your debit card, you just go online and freeze it and then when you eventually find it hiding underneath the like button that was smashed, you can unfreeze it.

So overall, for a debit card, Discover is highly recommended, and they've always been a great bank with really good reviews. Axis Bank is another one that offers you a debit card with one percent cash back with no annual fee, except with this one instead of earning a maximum of thirty dollars a month back, you could make up to $2,000 a month cash back.

Of course, to do that would require you to spend two hundred thousand dollars a month on your debit card, which would be insanely stupid. And on top of that, those transactions would have to be eligible, which means it requires a signature, which disqualifies a lot of online spending, which is not fun.

But hey, you know what? That's always how they get you. You're also going to need to keep a minimum of fifteen hundred dollars in the checking account, so keep that in mind. Besides that though, offering any level of cash back on a debit card is pretty good.

And the other advantage is that they're offering a one point two five percent interest rate on their checking account up to the first hundred and fifty thousand dollars. So between the two, if you are gonna be using a debit card, this one is decent.

And even though there were a few other debit cards that offer cash back, I'll be honest with you guys, I just didn't see the point in mentioning them here because I didn't like them. So if I didn't like them, I'm not gonna waste your time talking about them.

So there we go. I wanted to save you some time, and let's move on to this. Now, even with all of that said, and even though a debit card offering any amount of cash back is rather remarkable, I do want to say this, as unpopular as it might be to say, there are so many disadvantages of ever using a debit card over a credit card.

And it's for these reasons why I almost never recommend anyone use a debit card consistently on a regular basis. One, credit cards are just so much better for security, hands down. Even though debit cards are getting better, they still have a long ways to go.

Any time you use a debit card, you're basically giving the entire world a direct line of access to your money. And especially in the event of an error or an overcharge, getting the money back into your account can be rather troublesome, especially on short notice.

With a credit card, on the other hand, you accrue a balance on the card, and then you pay down that balance at the time it's due, usually 30 to 60 days later. None of your actual money is used by the time you pay it off. It's like being able to use someone else's money completely free for 60 days.

At the end of those 60 days, assuming all of those charges are legitimate, you just pay back what you owed. The credit card really just becomes a buffer between what you buy and the money that you have. So if there are any mistakes or errors, you still have all of your money available to you, and then it's up to the credit card company to look into it on your behalf.

The second reason I don't use a debit card is that it doesn't have the purchase protection that credit cards do. See, many credit cards offer this as a perk of using their service, and this alone should be a reason for you to use a credit card over a debit card. Nine times out of ten, like American Express can sometimes double your existing warranty on your items or even replace them on your behalf if they're lost or stolen.

They also have what's known as return protection, which means if you go and buy something and decide to return it, and the merchant for whatever reason won't accept that return, the credit card company will handle that for you and then reimburse you for that charge. Many credit cards will do this, and it's really nice to know you have a big company behind you that will back up whatever your purchase is.

Now, the third reason I don't use debit cards is that their rewards just pale in comparison to what credit cards offer. None of the debit cards out there have a sign-up bonus, whereas with a credit card, you just meet the minimum spend, you get a whole bunch of points, and then you get free stuff. Not to mention all of those sweet, sweet points and cash back you can get with credit cards over a debit card.

Like, don't even bother getting one percent cash back with a debit card when you could just get two percent cash back on everything using this. Lastly, the best reason to use a credit card is to improve your credit score and increase your credit utilization. Here in the United States, your credit score is a huge determining factor to determine whether or not you get a loan to buy a house, a car, or anything you want to finance.

It also determines what interest rate you pay and how much money you could save on those purchases. If you don't have a good credit score, you're going to end up losing a lot of money.

So, I would like to think that all of those reasons are fairly compelling to use a credit card instead of using a debit card. However, there is a bit of fine print when it comes to this and using a credit card that I do want to tell everybody, and it's just this: you should not ever use credit cards to rack up debt if you don't have the money to pay it off in full by the time it's due.

You should never spend a single penny in interest on a credit card. You should never spend more money on the card just because the money isn't immediately taken out of your account, and you should always have the cash available to pay it off at all times. Basically, just treat a credit card like it's exactly the same as your cash.

If you can't afford to pay it off immediately, then chances are you shouldn't be spending money on it. The only reason why credit card companies can offer you such good rewards is because most people don't do this, and it's really profitable for credit card companies to offer such good rewards to a small portion of people, knowing that that's going to be enough to lure everyone else in who's never going to use them.

It's very similar to grocery stores that sell that five dollar rotisserie chicken right when you walk in. Those chickens, by the way, lose money for the grocery store, but they make you more hungry. When you're more hungry, you're gonna be more likely to spend more money within the store.

So that means if you just walk in and buy the chicken, you're gonna be losing money. Credit cards are very similar. That's an opportunity for you to go and make money from the credit card companies, but you also have to acknowledge the dangers of that, and that most people won't use it correctly.

It's because of that, in the first place, that they can offer you the rewards, so you really got to be smart. Now, given that, and given the major consumer shift towards spending money on debit cards, I think it's kind of reasonable to assume that a lot of major banks will start to offer debit card rewards.

If they get a sense that their credit card usage is declining for real, we could look back at this a few years from now and see what happens. But I have a feeling that debit cards are soon gonna start to catch on once banks realize just how much potential there is with this.

Here's my thinking: First, I wouldn't be surprised if debit card rewards started getting a little bit better. Like, imagine one and a half percent or even two percent cash back or some sort of sign-up bonus if you get the debit card.

Imagine this: I believe the rewards with debit cards will start to get better. Like, imagine one and a half percent cash back or two percent cash back on revolving categories or even a sign-up bonus when you activate a debit card with a new checking account.

Now, even though this is gonna mean less profit for banks, it is a lot less risk for banks at a time when they're deleveraging and lending less money. Offering a debit card with a good reward is an easy way for people to put their money within the bank, and then once the money is in there, banks can do what they're best at, which is charging egregious monthly fees on their checking accounts.

So that's how they're gonna make their money.

Three, if this trend continues, we do have to acknowledge that there must be a psychological benefit behind it. I do agree that it is weightlifting not to owe anybody anything and just have all the money available to you without having to pay anything to someone else. I think for many people, they care more about that than maximizing the value of every dollar.

Now, I think that's totally fine, to each their own, as long as they understand what that means. But that also means there's a big opportunity for banks out there to capture that market with a good debit card or with a checking account with a good reward.

Then from there, they could get people to use that as their primary bank. And by the way, for any big banks out there who want my ideas of what to do, you could ask me. Just think about it for a second: if one of those stock trading apps offered a debit card with one and a half percent cash back and a checking account that paid one percent, it would be a no-brainer just to go and use it.

I have a feeling a lot of people would move their money over, and then once it's in the account, you would be more likely to invest it, and then from there, you'll end up making money on the back end. Or, of course, you could hit them with a targeted ad, kinda like this one you’ll see here.

So really, at the end of the day, it does make sense why debit cards have become a little bit more popular lately. Just out of an abundance of precaution, people feel more comfortable spending money they already have and seeing the money taken directly from their account.

There is a benefit to having that sort of peace of mind. Because of that, we could see a new wave of companies going after that market and really try to corner the debit card market in a way that previously has only been reserved for credit cards.

So I really wouldn’t be surprised if one day debit cards offer a similar reward tier as credit cards do. However, as it stands, when used correctly, credit cards are still the very clear winner. Being able to get better purchase protection, rewards, cash back, and boost your credit score is just a no-brainer.

And as long as you have the discipline and self-control not to abuse it, credit cards could be a very wonderful thing. Although I have a feeling, give it time, debit cards will soon start to compete with this market, which would make Dave Ramsey very happy to hear.

And also very likely to smash the like button for the YouTube algorithm. So with that said, you guys, thank you so much for watching. I really appreciate it. As always, if you've not already subscribed, make sure to subscribe and hit the notification bell so you're notified anytime I post a video.

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