Credit vs. Debit: When to Use One Card Over the Other

October 9, 2019

There are more options for credit and debit cards today than ever. Sometimes, it can be a little confusing when you step up to a cash register and have to choose which card to use. Leveraging when best to use your debit and credit cards can maximize your benefits and leave you to make more financially savvy decisions.

What distinguishes credit from debit?

The biggest difference between credit and debit is where the money derives upon payment. When you use a debit card, you are spending money from an account linked to your cash. Your standing balance of cash goes down as soon as you swipe your card and the balance is posted to your account.

A credit card acts as a loan wherein you and your credit card company have an agreed-upon statement where you will make payments in an agreed-upon timeline—usually monthly. Credit cards have variable interest rates that range on average from 13%-30% depending on your credit score, credit card company, and whether you’ve incurred a penalty from, for example, a delayed payback.

Can a credit card be used as a debit card?

Debit cards and credit cards can be used strategically to maximize the benefits of your credit card while also raising your credit score. When you apply for and receive a credit card, you’ll notice a maximum balance for allotted to spending. This amount could exceed what is in your debit card but it’s important your spending does not. Having more credit shouldn’t mean you can now live beyond your means.

NerdWallet details how a credit card can be a fantastic tool to build or rebuild credit especially when credit users set a budget to avoid overspending.

In addition to raising your credit score, choosing a credit card that fits your lifestyle could make it possible for you to earn benefits while you pay with money you were already planning on spending.  Maybe you like to treat yourself to a nice dinner periodically? Maybe you’re a frequent traveler who’s loyal to an airline company? Survey your habits, think about what credit card benefits you’d like to receive, and then research the card that will work best for you.

What about using a debit card as a credit card?

Even though some retailers give you the option of credit or debit, utilizing your debit card and opting for credit will not necessarily mean you’re not spending cash. Some payments are still posted immediately regardless of which option was chosen while others might delay the posting of the payment. Your debit card won’t exactly work as a credit card and choosing credit when paying with debit doesn’t always buy you time.

It’s always best to talk to your banking institution and credit provider to get a thorough break down of what your card is and is not offering you.

So, when do I choose credit over debit?

You can use your credit card in place of your debit and make payments with the cash in your checking account. However, there are some instances when one card bests the other:

  • Shopping somewhere new – If you’re feeling nervous about a purchase because of security like an online store whose website might not be secured or a store you might not return to while traveling, consider using your credit card. Given that your credit card isn’t linked to your cash, you have more options for mitigating fraud and scams. Some credit cards even offer better exchange rates or lower transaction fees while traveling, too.
  • If you need to make a cash payment fast — Consider using your debit card. You can think of debit card transactions as being similar to ATMs except that cash is not landing in your hands but in someone else’s.
  • When you’re trying to recover from poor money management — Consider using your debit card. As mentioned, your credit card could very well allow for a higher spending allotment than your checking account holds. If you’re trying to get back on track with your spending, using your debit card will make payments feel more tangible as you’ll be watching your cash deplete in real-time.

Credit and debit are fantastic tools that can work together to help you reap the most benefits for your money. Be sure to be strategic so you can consider what’s in your short and long-term future while you strive to reach your financial goals.

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