Credit Card Quick

Credit vs. Debit: Which One Should you Use?

Introduction

The big debate continues: credit or debit?

Debit card advocates say that debit cards are the way to go because you can never spend more than you have, while credit card advocates tout the many safety benefits of using a credit card. So, which one is right?

To further confuse you, the truth is that both sides are right on the debit card vs. credit card debate. In other words, what may work well for one individual may not be such a great deal for another individual.

So, you’re at the checkout line at the grocery store, which one should you swipe? Here are some factors you may want to consider before deciding whether using a debit card or a credit card (or a combination of the two) is right for you:

• Credit cards allow you to pay for multiple purchases and then pay them off at once when the bill arrives, or in several increments, depending on your budget and financial situation.
• Because a debit card is tied to your bank account, you will not be approved for the purchase if you don’t have enough in your bank account to cover it. For some individuals, this is a good thing, while for other individuals this can prove to be quite embarrassing or inconvenient.
• If you’re not careful, credit card debt can wreck your finances and your credit score. On the other hand, the proper and responsible use of a credit card can boost your credit score and afford you lower interest rates on many types of loans and lines of credit.
• Large purchases are typically protected if you pay for them with a credit card. Some of the benefits of using a credit card for large purchases include warranty protection, theft protection and return protection.
• If you make travel reservations, hotel reservations or rental care reservations, you can expect the company to put a large hold on your account. This may not be a good time to use a debit card, as this could freeze a good deal of your money for a short period of time.
• For online purchases, credit cards are probably your best bet, as there are great protection laws placed on credit cards. In fact, according to the National Consumers League, credit cards offer stronger fraud protection and better security than debit cards.

The Debit Card/Credit Card Debate: Which one is Right for you?

Choosing Credit Card

Many Americans now use debit cards as an alternative to paying by check, cash or credit card. They certainly are a convenient way to for purchases, but are they the right form of payment all the time?

Well, this answer certainly is up for debate, although there are plenty of pros and cons, for both credit card and debit card use, which you should consider before making your next purchase:

Pros of Debit Cards

• Ideal for consumers who want to avoid credit card debt
• Usually no fees associated with debit card purchases
• Ideal for staying within your budget, as the money is withdrawn from your bank account
• Usually accepted where most credit cards are accepted
• No monthly bills or interest rates to worry about

Cons of Debit Cards

• You may face large insufficient fees through your bank if you overspend (this can be solved by linking your savings account to your checking account for overdraft protection)
• May not afford customers the same incentives and perks of credit cards (cash back rewards, rebates, etc.)
• May not offer the protection against fraud and defective goods and services that credit cards offer
• A thief may be able to drain your bank account before you notice fraud (although your debit card may be protected against fraud, it may take some time to receive your lost money)

Pros of Credit Cards

• No need to pay interest fees if you pay it off within the first billing cycle
• Typically accepted at most retailers
• Offers the luxury of buying now, paying later
• May prove extremely useful in emergency situations
• Offers different types of perks and incentives, such as cash back rebates and travel incentives
• Protects cardholders from fraudulent account activity or defective goods and services
• Positively affects your credit score, if used properly

Cons of Credit Cards

• Can negatively impact your credit score, if used improperly
• Charges interest fees if the balance is not paid in full each month
• Can cause you to overspend, or purchase items that you don’t need
• Can get you in over your head in debt, thereby negatively impacting your budget