You pile your purchases onto the check-out lane and as you watch the total rise, you pull out your wallet. Then the question comes, “Should I use my debit or credit card?” You probably have a preference and routinely pull out the same card for every purchase.
But, did you ever stop to think about the differences between debit and credit cards, and which might be the best option for different types of transactions? Read on as we break down the information on each card type and how you can shop wisely by choosing the right card.
Know Your Debit Card
Debit cards work much like cash does. Your debit card is tied to your checking account and when you make a purchase, the amount is deducted from your checking account. Debit cards also allow you to access cash at ATMs or at many retail cash registers that offer a “cash back” option.
Why am I asked if I want to use “debit” or “credit” when I swipe my debit card at the register? The difference is which security method you wish to use…with the “debit” button, you will need to enter a PIN at the register. With the “credit” button, you’ll most likely need to sign or provide authenticating information for the transaction. Either way, the transaction is deducted from your checking account.
Know Your Credit Card
Using a credit card for your purchases is very much like a short-term loan. You are “borrowing” money from your credit union, bank or credit card company to pay for your purchase. At the end of the billing cycle, you are required to pay back the amount that you borrowed. If you cannot pay the amount in full, you are charged interest, just like with any other loan.
Shopping with credit cards can be a bit of a double-edged sword. If you use credit cards responsibly, such as by not exceeding your credit limit, and by paying your balance off each month, then credit cards can be a great tool in building your credit history and raising your credit score. However, with the high spending limits provided by many credit cards, you can quickly find yourself spending more than you can afford to pay off each month.
Deciding Which Card to Use
So, the next time you’re faced with the question “should I use my debit or credit card?” consider the benefits of each to determine the best payment options for you. The following lists some basic recommendations:
Big Ticket Items – Use Credit Card
In most cases, credit cards offer purchase protection. So if your new big screen TV or laptop begins to malfunction, your credit card company may work on your behalf to have your purchase refunded.
Shopping Online – Use Credit Card
A lot of debit and credit card fraud originates through online activity. Since your debit card is tied directly to your bank account, there is potential for more damage to be done if cyber thieves access your account information. Opt for a credit card when shopping online.
Your Budget is Tight – Use Debit Card
When you’re trying to stick to a budget, shop with your debit card. Because you can only spend the amount of money currently in your checking account, a debit card helps to ensure you won’t go over your spending plan.
Building Credit – Use Credit Card
For example, if you have future plans of home ownership your credit score is going to play an important role in applying for a mortgage. The same goes for auto loans and more. Responsible credit card use and a history of paying your credit card bills on-time and in-full will help improve your credit score. And a higher credit score can equal lower interest rates on all loan types!
Recovering from Debt – Use Debit Card
You’ve worked hard to pay off previous debt, so don’t repeat the cycle. Put your credit cards on hold for a while and use your debit card for purchases. You won’t be tempted to go over budget or make impulsive, big ticket purchases when you know the money comes right out of your checking account.