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t’s November and the holiday shopping season is upon us again. The African American Cyber Report is launching a weekly series focusing on online holiday shopping. Each week through New Year’s Day we will investigate a different facet of online shopping from safe and secure payments to the apps and websites that get you the best bargain. If we hear of a special sale or online event we will let you know about that as well.
African-Americans are a powerful consumer segment. According to a report from The Nielsen Company entitled “The State of the African-American Consumer,” black buying power is nearly $1 trillion. How’s that for a U.S. consumer market segment? Black people are not only a significant market segment but they shop more than other groups, spend less money per trip and spend more time investigating the product before buying. Research indicates black people are smart, savvy shoppers.
Before we examine the choice of credit versus debit cards for shopping online we need to take a quick look at black people and their credit cards. According to a report from the NAACP and public policy research firm Demos entitled “The Challenge of Credit Card Debt for the African-American Middle Class,” approximately 42 % of black households are in debt. These families are borrowing simply to make ends meet and to pay for basic expenses, such as groceries, rent and utilities. Overall black people face greater credit restrictions and are more likely to be subject to harsh credit collection tactics. Many black people pay higher interest rates and fees for alternative financial services that includes pre-paid debit cards and check cashing services. So the picture shows that we have a powerful market presence but we also have problems managing and retaining credit. And I might add that it is not always someone else’s fault.
Credit vs. Debit for Online Shopping
Right off the bat the credit card wins hands down for shopping online. But lets not ignore the benefits of the debit card. Especially if you have a tight budget and need to restrict the spending of yourself or someone else.
Credit cards offer distinct advantages over debit cards. And if you are holding a credit card now is the time to get real familiar with the protections that come with that card. Make sure you understand what security measures the card offers against fraudulent charges as well as the method for disputing purchases. There are going to be black people who order something from an online store only to discover that it is not what was advertised. As an African-American consumer make sure you know the dispute process . Study it before you hit those online sales. Its your money we’re talking about.
Carrying around a credit card from the right company offers some awesome benefits. These benefits can vary from one card issuer to another so it’s a good idea to study your account agreements for the details. Study that thing and make sure you know it. It can save you some headaches and provide some surprising benefits on everything from buying airline tickets to renting a car to getting a warranty extended. If you’re planning to travel over the holidays then you need to investigate the travel benefits of your credit card. Some credit cards offer travel services like getting a seat upgrade or discounts on luggage fees. Other benefits include rental car upgrades or insurance or hotel discounts and upgrades. Travel insurance is also available from some cards free of charge. Some cards offer help finding a doctor or lawyer. If you buy a product that has a warranty you can actually get that warranty extended for up to a year depending on the credit card. But keep in mind that these benefits are sometimes automatic and others you have to ask for. So studying your card agreement is extremely important. Didn’t I say that before?
The beauty of credit cards is that there is an extra layer between your real money and other people. A debit card or pre-paid card is the same as cash and that is where you find additional, and unnecessary risk. As soon as you make a purchase that money is out of your account. Any problem with the purchase and its just you and the merchant. And that is a very weak negotiating position. The Better Business Bureau or your bank may be able to help but not much.
By using a credit card, you have a powerful company on your side. This makes disputing charges and getting satisfaction when having to return an item much easier. With a credit card the purchase in dispute is not yet paid for. The card issuer can refuse to honor the demand for payment and that leaves the merchant in a lurch. So that merchant is more likely to respond favorably to your demands. CreditDonkey.com, a credit card comparison website, offers a list of the best credit cards for shopping online.
For all you out of control spenders, credit cards are still better than debit cards. A frequent complaint about using credit cards as a primary form of payment is that the advantages are outweighed by disadvantages for many people. As I stated above many African-American consumers simply can’t handle credit cards without spending more than they can afford. And what happens? Higher interest rates, ruined credit scores, all that.
But overdraft protection on a debit card is even worse. Yes, you can over spend with a debit card. Over charging on your debit card results in multiple overdraft fees which are more than credit card interest rates and late payments. And unlike a credit card bill that arrives once a month your bank account takes the hit immediately. With a credit card, you can close your account and work out a payment plan, but with a debit card you don’t get that option.
Many pre-paid debit cards a very popular in the black community. But being popular is far different from being a good option. Many pre-paid debit cards, while intended to help the African-American community are often doing just the opposite. Pre-paid cards have been criticized for exploiting poor and dis-advantaged black people by charging higher, sometimes exorbitant fees. This is especially so when people make the mistake of thinking of the card as a credit card. But the pre-paid card is a huge and profitable market to the tune of about 500 million cards in circulation channeling billions of dollars in sales. You can find a list of the best and worst pre-paid cards here.
Another payment method you need to consider for your holiday shopping is the retail card. Be aware that these store cards can carry some pretty high interest rates. But at the same time you can take advantage of some pretty good deals by using the store credit card. Some stores will give you as much as 10% off your purchase if you apply for the card at the register. Using these cards does not carry a lot benefits at all. And they are dangerous to your credit report. For example when you fill out that card application it shows up on your credit report and if you close the account it stays on your credit report. But if you are looking for the best retail cards to shop with this holiday season you can find the top ten here.
So as you start hunting for those holiday bargains and eagerly wait for Black Friday or Cyber Monday be aware that there is a difference between a credit and a debit card. Make wise purchases and know what tools and weapons you have at your disposal when using that credit card as you shop this holiday season.
Now you know