The College Wallet: Debit, Credit, Cash and Digital

Convenience, fraud risk, security, and your credit score are just a few of the factors to consider when deciding which payment method is best for any given situation. Which is the best payment method for your college wallet? The answer to these questions, of course, is “It depends.”

Debit cards

With plastic card fraud as rampant as it is these days, it’s hard to recommend using debit cards at the point of sale (POS). The Target data breach shows that plastic cards with magnetic stripes are vulnerable to compromise. A debit card is tied directly to your bank account, and if fraudsters gain access to those funds they can wipe out your account balance in no time. While you can contest most of the fraudulent transactions, it takes time. And in the meantime, you’re out of cash.
Which is the best payment method? The answer to these questions, of course, is “It depends.”
You’re probably safe using debit cards at ATMs—especially at your financial institution’s ATMs. And generally withdrawing cash using a debit card is less expensive than using a credit card for this purpose, since most credit cards charge a cash advance fee. But avoid using debit cards for online purchases, for the same reasons mentioned earlier.

Credit cards

These are a better choice for online and POS purchases. While fraud is still a concern, the risk is a little lower. If someone accesses your credit card and makes purchases on it, you can contest the fraudulent charges. Unlike your debit card, the credit card is a type of revolving loan, so you can often clear up the problem transactions before the next billing cycle.

If you’re trying to build your credit history, occasionally using a credit card—and paying off the balance every month—is a good idea. Just don’t let your credit card debt get ahead of you, especially during your college years. No matter what type of plastic card you use, always contact the card provider if your card is lost or stolen, or if you suspect it has been compromised in any way.

Prepaid cards

These are a good choice if you’re traveling—particularly overseas. Most other countries have adopted, or are in the process of adopting, smart cards. The new technology incorporates microchips embedded in the cards, instead of a magnetic stripe.

Americans traveling abroad with traditional cards are much more vulnerable to fraud, and sometimes the mag-striped cards aren’t even accepted by merchants in other countries. You can load a set amount of funds on prepaid cards, and they’re generally not tied directly to your bank accounts. They do, however, tend to incur higher fees.

Cash

Until the U.S. adopts smart card technology, cash is a good option for small transactions. The problem with cash, of course, is that it isn’t traceable. If you’re robbed, it’s gone. And if you go on a spending spree, it’s hard to look back to figure out where you squandered your funds.

Digital

There are a few newer payment options to consider, especially for online and mobile POS purchases. Services like Dwolla, Venmo, and PayPal allow you to transfer money to vendors and other individuals without using cash or plastic cards. Bitcoin and Coin are two other payment options—not widely accepted in the U.S. yet, but some say they might be the future of online, mobile, and POS purchases. The real appeal is convenience, as digital payment methods can tie into someone’s cell phone to stay organized. This is far removed from the use of cash, where tangible bills were counted towards making purchases. Today, currency activated through digital methods requires a new understanding of financial literacy. Basically, it’s so easy to spend money digitally someone could easily lose track of their budget if not careful. This new frontier is being driven by young consumers, but as time progresses we can expect more common use of digital payment methods.

But for today, consider the “who, what, where, and why” of what you’re buying. Then, make the appropriate decision on “how” to make the purchase.