When making purchases, which would be the better plastic to whip out: your credit card or your debit card?
However, the answer depends on many factors, from your personal money style to what kind of purchase you are making to security issues.
Here is a breakdown of when you will want to use which card:
For Regular Purchases
Whether to use debit or credit while you are doing your general shopping is initially a decision you make based upon your own finances. If you are someone who regards a credit card as a free invitation to shop on someone else’s dime, then debit is probably the right choice for you.
With debit, you can’t spend more than you have in the bank, and that ensures that you won’t get yourself into some ugly debt. (It is important to note that you will have to opt out of overdraft protection in order to avoid actually spending more than you have and incurring heavy fees. Banks can no longer enroll you in these types of overdraft protection programs without your knowledge or consent.)
If, on the other hand, you are both able to charge responsibly (paying off your balance each month) and can earn something back from your credit card, then credit is the way to go. For example, my husband and I have a Upromise credit card which gives us back a percentage of our purchases for our son’s education.
We tend to use this card anytime we don’t use cash, and end up with free money for the peanut’s future schooling since we always pay off the card each month.
For “Blocked” Purchases
When purchasing something that might have a variable price, such as gas, hotel charges, or a car rental, the retailer does not know for certain how much your product or service will cost, and will therefore “block” an amount from your credit or debit purchase that will certainly cover whatever the final charge will be.
When this blocking is for $50 worth of gas when you only purchase $35 worth, it’s not a big deal for either credit or debit. However, if you are putting a $500 hotel bill on your debit card and the hotel blocks $800 (just in case you lengthened your stay, raided the mini bar, and watched a film you’d rather your wife didn’t know about), then you could find yourself bouncing checks.
This is the perfect scenario for using your credit card. The block will be removed by the time your bill comes due, so you will not have any of the money in your checking account tied up unnecessarily. Just make sure you have the $500 set aside to pay off that bill!
For Large Purchases
When you are buying a big-ticket item, you have certain protections in place if you use a credit card. Should the product turn out to be defective, for example, you can dispute the charge with your credit card company. If you made that purchase with your debit card, the vendor will have your cash and you will have to do the work to get a refund on your own.
Internet purchases in particular are safer with a credit card. If you dispute a purchase you made over the internet, you are protected by federal law which requires the credit issuer to dispute the matter with the retailer. You do not have to pay the charge (or interest) while the matter is still under dispute. Debit cards simply do not give you that kind of protection.
Using your debit card with your PIN whenever you make a purchase does increase the opportunities for someone to steal your numbers. Since your debit card is your access to your liquid finances, that is a concern worth noting.
While you are not liable for everything a scammer grabs from your account if your debit card is compromised-generally you’re responsible for $50 if you report the fraud within two days, $500 if you report within 60 days, and the entire amount of your checking account after 60 days-you do not have the same kind of protections in place that a credit card gives you.
It’s important to remember that carrying your debit card is like carrying all the cash in your account at once. So be as careful with it as you would be with that much cash.
Debit cards provide a great deal of convenience and are an incredible boon to those individuals who struggle with bills. But in most cases, credit (used responsibly) is the smarter option.
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