In an effort to manage debt, many people rely less on credit cards, and usedebit cardsmore frequently to pay for purchases. Using a debit card may be a good idea, but there are instances where a credit card might be the better option. Let’s break down the different reasons to use a debit card and a credit card and why.
A Debit Card May Be Best If…
You want to improve money management habits. If you have a hard time sticking to a budget or living within your means, a debit card may be the best option for you to manage your money. When using a debit card to make a purchase, you are essentially paying cash which is better than taking on debt by using a credit card. And, if you struggle to pay credit card bills in full each month, a debit card will not add to your monthly interest fees.
You want access to cash. When you need cash, you can use your debit card at ATMs or get cash back at most point of sale purchases. Choosing the “cash back” feature at a point of sale will save you ATM transaction fees as well as a trip to your bank.
A Credit Card May Be Best If…
You make a big purchase. Using a credit card to buy a big-ticket item for which you’ve budgeted for, gives you a number of protections that a debit card might not. For example, credit cards offer cardholders dispute rights if there is a problem with the product purchased. Under Federal law, you can dispute the charge and, in most cases, the credit card company will pursue the issue with the retailer. Some credit cards may also offer extended warrantees on merchandise.
You shop online. Credit cards are a safer option when shopping online because if you encounter online fraud scammers, they won’t deplete your checking or savings accounts. And, unlike the federal protections for credit cards, your liability limit for a debit card depends on the situation and your promptness in reporting the lost card or unauthorized transaction to your bank.
You book a hotel or rental car. When you check into a hotel, they will often “hold” a specific dollar amount on your card. This means they put a hold on your credit or debit card for the cost of your stay plus additional funds to cover incidental charges should any happen during your visit. Once you check out, the hold is released when your final bill is reconciled and your account is charged.
If you use your debit card, you will not have access to the hold amount until the hold is released. Some rental car companies follow the same hold procedures.
Another bonus to using your credit card when booking a rental car is that most major credit cards offer rental insurance. There are variations in benefits and requirements on each card so be sure to ask about your card’s specific benefits.
You want to earn airline miles or a cash back bonus. Responsible credit card holders can earn miles for dollars spent. Many airline rewards cards offer mileage signup bonuses, which are often enough miles to put you 50-100% of the way toward a free flight. If travel rewards don’t interest you, look for a credit card that provides anywhere from 1-5% cash back rewards on your purchases.
You want to build credit. If you have minimal credit or are trying to improve your credit score, using a credit card responsibly mayhelp your credit scorebecause credit card companies report your payment activity to the credit bureaus. Paying with a debit card is like paying with cash, so payment history is not reported to a credit reporting agency. At Lakeland Bank, we offer customers the ability to check their credit score using Credit Sense. Not only can you use this resource to monitor your credit score, but also access your full credit report and customized tips to improve or maintain your score.
Knowing when to use a credit or debit card can help you make the best use of these financial tools. A credit card can protect your purchases from defects and failures, and handle disputes quickly without putting your money at risk, while a debit card can help you stick to your budget and keep you from increasing debt. Ultimately, it is up to you to decide which option is best for your financial situation.
At Lakeland Bank, you have access to both a debit card and credit card. To learn more about our personal banking products and services, contact us today. For more valuable information to improve your overall financial health, check out our other blogs.
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FAQs
Credit cards can be especially useful if you need to make a large purchase or face a financial emergency and don't have enough cash available in your checking account. Debit cards, on the other hand, can be helpful for staying within your budget and not spending money you don't have.
When should you use a credit card vs debit card? ›
January 23, 2024
- A Debit Card May Be Best If…
- You want to improve money management habits. ...
- You want access to cash. ...
- A Credit Card May Be Best If…
- You make a big purchase. ...
- You shop online. ...
- You book a hotel or rental car.
In general, NerdWallet recommends paying with a credit card whenever possible: Credit cards are safer to carry than cash and offer stronger fraud protections than debit. You can earn significant rewards without changing your spending habits.
When should someone choose to use a debit card instead of a credit card? ›
You can manage spending better
If you find yourself struggling to pay off your credit card, using a debit card may be a better way to manage overspending. "If you have credit card debt, then putting routine purchases on a debit card would make sense in order to avoid going deeper into debt.
Should I spend on credit or debit card? ›
As well as enabling you to spread the cost of big purchases, a credit card gives you more protection than a debit card. Your card provider is jointly liable with the retailer so, if the goods are faulty or the company goes bust, you're entitled to claim your money back.
What are 3 advantages of using a credit card over a debit card? ›
Credit cards help build your credit history. They offer rewards like cash back, miles or other rewards for your purchases. Offers better protection from fraudulent charges. When a fraudster uses your credit card, they are taking money from the issuer, instead of stealing directly from you and draining your bank account ...
Is it better to pay bills with credit or debit? ›
Be aware of any convenience fees you'll incur by paying your bills with credit cards. It's best to use credit only for products and services that won't charge a fee, and using cash, debit or bank transfer for the rest. And, of course, use a credit card only if you know you can pay off the balance each month.
What are 5 disadvantages of debit cards? ›
Here are some cons of debit cards:
- They have limited fraud protection. ...
- Your spending limit depends on your checking account balance. ...
- They may cause overdraft fees. ...
- They don't build your credit score.
No, your debit card is linked to your bank account so as long as your bank account is open your debit card will be active. However, your debit card will expire - your bank will just send you a new one when this happens.
Is it better to not use your credit card or use it? ›
Bottom Line
If you don't use a particular credit card, you won't see an impact on your credit score as long as the card stays open. But the consequences to inactive credit card accounts could have an unwanted effect if the bank decides to close your card.
But depending on your bank, running a transaction as credit may provide you with stronger fraud protection for unauthorized transactions.
Why do people use debit instead of credit? ›
Principally, the 50 percent of debit-card users who revolve credit-card balances would pay interest to charge purchases on the margin and hence might rationally choose to use debit rather than credit to minimize transaction costs.
When to use a debit card? ›
A debit card is great for everyday purchases like gas, groceries, meals, clothing, and more. As long as you have enough money in your account, debit is convenient and effective (remember, using a debit card removes the money immediately, so there should be enough in the account to cover the expense).
What is better a debit or credit card? ›
Bottom line. Credit cards offer the most benefits and protection against fraud, making them the overall best payment option. However, credit isn't for everyone. If you have a track record of overspending, it may be better to stick with a debit card until you can responsibly manage credit.
Is it safer to use a credit card instead of a debit card? ›
While debit cards and cash offer consumers limited benefits, using a credit card can help protect you against purchases that go awry. A credit card is guarded from fraudulent activity and some offer benefits like travel insurance and return protection.
In what circ*mstances might you decide to use a credit card? ›
Credit cards come in handy for making large purchases that you want to pay off over time. For instance, if you need to buy an airline ticket but you don't have sufficient funds to cover the cost until you get paid, you might want to use your credit card.
In what circ*mstances might you decide to use a debit card? ›
Debit cards take money out of your checking account immediately. Debit cards let you get cash quickly. You can use your debit card at an automated teller machine, or ATM, to get money from your checking account. You also can get cash back when you use a debit card to buy something at a store.
Are there any positive financial reasons to use a credit card? ›
Credit cards can be a great financial tool when used carefully. Not only can you build a positive credit history, but the right card lets you earn rewards on your everyday spending and get value from added benefits.
