While making payments, do you often have to think which one should you use - a credit card or a debit card? Do you often feel that if you would know which one to use when? If yes, then you should go through this article to know when to use a debit card and when using a credit card is best.
Before acquiring knowledge on whether to use a debit or a credit card, you should be clear about the difference between the two. When you use a debit card for a transaction, the amount gets directly debited or reduced from your account; whereas, in case of a credit card transaction, you have to pay the bill later.
Credit and debit cards - Which one to use when
You should consider these points to decide when you should use your debit card and when swiping a credit card is better.
- You want to build credit - If you want to build credit, then you should use a credit card. However, you will have to pay your bills on time to establish a good credit history. When you take out a credit card, you start a credit history and it shows on your credit reports. So, you need to use and manage it responsibly. However, a person trying to build a credit history may not get qualified for a credit card. If you're facing similar situation, you can take out a secured credit card, wherein you deposit an amount that becomes your available credit limit. It may appear to you like a debit card but it's not. Debit cards don't have an impact on your credit score.
- Making an expensive purchase - When you're buying an expensive item, you should always use a credit card. If you find any problem with the product you've purchased, then you can always dispute the charge if you've used a credit card. You can withhold payment and usually the credit card issuer will also investigate the problem for you. You cannot withhold payment when you use a debit card.
- To earn rewards - In 2011, most of the banks are waiving off debit rewards programs. Moreover, a cash back credit card can help a consumer practicing responsible spending habits. Such a card can give him/her an opportunity to earn a little extra for the effort he/she is putting in. However, rewards credit cards usually come with relatively higher interest rates. So, while using these cards, make sure you pay off the outstanding balance at every billing cycle as otherwise, you won't be benefited much by using such cards.
- When you are concerned about safety - It is advisable that you use a debit card when safety is your major concern. This is because, as per federal law, you are more liable for a fraudulent charge on a debit card than that on a credit card. After discovering that you've been a victim of identity theft, you're required to report it within 2 business days. Failing to do so, you've to pay much more on a debit card as compared to a credit card. There's another reason to use a credit card in such cases - an imposter may use your debit card PIN to withdraw a lump sum amount from your bank account instantly.
- To control your overspending - If you want to curtail your expenses, then you should never use a credit card; using a debit card is the suitable alternative. As already mentioned, the amount gets debited at once when you use a debit card for making financial transactions. So, you cannot spend more than what you have in your bank account. Therefore, you should use a debit card more when you want to check your overspending habit in order to manage your finances better.
- Making payments at gas stations or hotels - When you use plastic money to make payments at hotels and/or gas stations, it is better to use a credit card. A retailer often puts hold on your debit card and it may prevent you from accessing your bank account till the debit transaction is processed. So, it may result in declined transactions or bounced checks. Therefore, try to use a credit card in these types of transactions.
Do you often forget the due dates of your bill payments? People forgetting paying their bills on time should use debit cards in most cases. However, keep at least one or two credit cards which you can use for making big purchases or when you're concerned about your safety.