When should you use your credit card, and when should you use your debit card?
This question is more complicated than it first appears. For example, some people exclusively use their credit card to pay for expenses. They feel this is more secure. Plus, in some instances this means they collect cash back or other incentive points. But this strategy requires a lot of diligence so that the balance can be paid in full at the end of the month. Otherwise you can seriously harm your credit score thanks to a growing debt balance.
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day 76 - credit cards
- Image by JudeanPeoplesFront via Flickr
By contrast, using a debit card means that you can only spend what is available in your checking account. Or at least, this is how it used to work…. A few years ago your debit card would be declined if you did not have the balance to cover a purchase. Now, banks are quick to cover your balance and charge you $35 or more for the favor. If you overspend you won’t be stopped at the counter. Instead, you can keep shopping and quickly rack up fees.
Still, there remain some general rule of thumb when to use
credit versus debit. Here they are:
Use Debit Cards When….
You Want to Buy Something Inexpensive or Consumable.
It’s hot, you’re thirsty, and you want a soda. If you don’t have
cash (first choice!), whip out your debit card. Some merchants have
minimal purchase requirements before they will let you use a debit
card. Do not put inexpensive purchases or consumable purchases on
credit because you’ll end up paying much more for it over time.
You Want to Avoid Lingering Interest Charges.
The quick pain of $35+ might be worth it instead of adding to a
growing credit card balance. (If making this choice is your
dilemma, consider it a
red flag.)
You Need Fast Cash
If you’re in a hurry for cash use your debit card. Preferably use
your card at your home bank to avoid ridiculous ATM fees. Taking a
cash advance from your credit card will incur a much higher
interest rate and could even trigger an interest rate hike on your
credit card. Not fun.
Use Credit Cards When…
You Shop Online.
Credit cards offer greater fraud-protection coverage.
You Buy Something Big
Some credit cards offer additional warranty protection beyond the
manufacturer. Also, you might be eligible for promotions or
additional incentive accumulation offer by the card.
To Establish Credit History
You need to establish solid credit history if you’re just starting
out… or starting over. Do so by purchasing an item on the credit
card and paying it off entirely at the end of the month or by
meeting minimal payment requirements. Note: minimal payments will
greatly extend the cost of whatever you’ve purchased.
