Card Play: When to Use Credit, When to Use Debit

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With reports of credit and debit theft and fraud making headlines, many people are debating when they should pull out the Visa card and use credit to pay for their purchases or if they should go with a debit card. Here are some facts that should help you decide.

Your money

When you make a transaction with a debit card, money is transferred immediately from your bank account; you no longer have access to it. With the credit card, you pay off your balance or a portion of your balance at the end of the card’s billing cycle, so it stays in your account longer.

Use debit cards if you prefer a pay-as-you-go approach and don’t want to have debt mounting up over a month. They give you better control over your spending, because unless you’ve arranged for overdraft protection, the transaction won’t go through unless you have enough to cover your purchase in your account.  So if you have trouble keeping your spending under control, stick with a debit card or pay cash.

With a credit card it’s easy to lose track of how much money you’re spending until the bill comes due. Plus, if you carry a balance, you end up paying interest. If you miss a payment date, you pay late fees and run the risk of hurting your credit record.

Providing protection

A credit card offers a lot of advantages over a debit card when it comes to protecting you against fraud, card theft and shoddy merchandise and services.

With a credit card you have the opportunity to monitor your transactions each day and to dispute any charges that are made fraudulently before the money comes out of your account. You also have a means of withholding payment if you don’t receive the merchandise you bought or if it isn’t as promised.

When you pay with a debit card, the money is gone immediately and it can be hard to get back. After you notify your bank of the fraud claim, it has have 10-20 days to investigate the claim. You can be left with no way to pay your bills as you wait for the bank to return your money.  

Federal law limits your liability for the fraudulent use of your credit card to $50, and many banks waive that $50 charge. You have zero liability if you report the theft before the card is used or if only the number (and not the card itself) is stolen and used.

With a debit card, you aren’t liable if you report the card loss before unauthorized charges are made, and you liability is only $50 if you report the loss within two business days after you discover it. But your liability goes up to $500 if you contact the bank after two days, and you could lose all the money in your checking account (and any other accounts linked to the card) if you don’t report the problem within 60 days of receiving your bank statement. Some banks voluntarily limit their customers’ liability, but are not required to do so by law.

Other considerations

You’ll probably need a credit card when traveling, since many car rental agencies and hotels don’t accept debit cards to reserve or pay for their services. But if you’re traveling abroad, a debit card usually gives you a better rate of exchange for a foreign currency than a credit card will offer.

If you hope to build a good credit record, a credit card can help, but a debit card can’t since debit transactions aren’t reported to credit bureaus.

Many companies like Capital One Credit offer credit cards with extended warranty protection on your purchases. In addition, you can earn rewards points, airline miles, cash back or similar benefits. Few debit cards offer that.

Whether you use a debit or a credit card is a matter of personal preference, but it’s pretty clear that there are several good reasons to prefer credit over debit. If you’re afraid you’ll be turned down when you apply for a credit card, look for a secured credit card account, which offers the convenience and protection of paying with a credit card while helping you build credit.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.