Credit vs. Debit Cards: Which Do I Use?

When you reach into your wallet to pay for something, do you pause to ask yourself whether to use credit or debit? It’s an important question, and one that is often overlooked. Although the decision between a debit card and credit card is a personal one, there are times when one is more appropriate to use than the other.

Debit or Credit?

Best Uses for Credit Cards

Credit cards are more heavily advertised and visible as a financial product than debit cards. While they come with perks and solid fraud protection, it is important to be selective when and where you use the cards. Here are three such instances:

1. For rewards Credit card companies offer some pretty attractive incentives to use their cards. You can rack up points to put toward hotels, flights, gas, groceries, cash back and more simply by opting to use a specific credit card. If you pay off your balance each month, you can really benefit from these opportunities and save a great deal of money. Otherwise, you may fall into fees more than freebies.
2. Online purchases It’s always advisable to use a credit card when making online purchases, as these cards offer a layer of fraud protection that debit cards do not. If someone steals your credit card number, you are liable only for charges up to $50 after you report the fraud, whereas you could be on the hook for $500 for a debit card. It is also advisable to research a company prior to making an online purchase with your credit card, especially newer companies. Make sure they are reputable to save you a great deal of stress.
3. When you can afford it While it can be tempting to use credit to purchase items now, resist the urge to spend habitually. Carrying a balance from month-to-month is a very big deal, because you must pay interest on the amount you owe. You will end up paying much more than you actually spent by accruing interest charges, leading to scenarios where you might pay for vacation expenses long after the trip. Use credit wisely to help build good credit, as paying off your bill each month shows you can manage it responsibly.

3 Best Practices for Debit Cards

Charging items to your credit card can get out of hand, and the way back on track can be your debit card. Since it dips into your checking account funds, you can better control your finances if debt is in your near future. Opt for your debit card for:

1. Frequent/familiar purchases It is not good to rely on too much credit. When shopping in-store at major retailers or smaller stores you frequent, using your debit card is a great idea. This helps you maintain a good grasp on what funds you have available and keep your monthly credit card purchases under control.
2. When budgeting If you are concerned about debt, ramp up your budgeting skills. When it comes to budgeting with plastic, stick to the debit card and grow healthier habits. Know your monthly spending limits and how much credit you can afford to spend. It is also much easier to resist temptation if you only have the funds in your account to spend, instead of spending to your credit limits.
3. When in credit card debt If you find yourself in credit card debt, continuing to charge purchases to your cards will only perpetuate a downward debt cycle. Repayment needs to be a priority. Avoid credit charges at all costs. Although debit cards do not affect your credit score directly, shifting to using them will help raise a low, debt-ridden credit score.

Credit and debit cards both offer a number of advantages as payment options, but remember that certain trends can help better your situation, whether it’s debt or other unfavorable factors. Know your plastics and you will be in control of your financial fate.

Spencer Tierney, NerdWallet

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