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Credit vs. Debit: When to Choose the Right Card

Posted On: July 13th, 2018

Most of us have debit and/or credit cards and use them frequently. They are easy to use and extremely convenient. They give you instant access to the money in your account without having to set foot in a credit union. Because debit cards are linked directly to your checking account, each time you swipe the card, money comes directly out of your account. Actually, a credit card is essentially a loan: You have a predetermined limit you can spend, and you have to make monthly payments. Typically, credit cards offer cardholders some sort of rewards program. Did you know that there are times when it is better to use a credit card than a debit card? I didn’t for the longest time!

Here are some times when you should choose credit over debit:

1.       When shopping online: Credit cards are much safer to use when online shopping than debit cards. There are certain safeguards in place when shopping online to help prevent fraudulent activity. I buy a lot of clothes from London, and each time I use my credit card it triggers an automated phone call from my credit union asking if the transaction is mine. I can choose to allow the transaction or report it as fraud. When I use my debit card, it just doesn’t go through.

2.       When on vacation: Using credit cards while on vacation is the best choice simply for their fraud prevention measures. A lot of times the credit card company will catch the fraudulent charges before you notice. Also if your card number was to be compromised the thieves don’t have access to the funds in your checking account. Lastly, disputing charges on a credit card is easier than with a debit card.

3.       If you need to fix your credit: If your credit score is lower than you would like, using a credit card responsibly can help increase your score. Make sure to pay the card off each month and pay it on time to help boost your score. Credit cards are reported to the credit bureaus once a month, and debit cards are not. With a higher credit score, you become eligible for lower interest rates on loans.

4.       For the rewards: Each credit card is different, but most offer a rewards-type program. A lot of times you can earn free flights, hotel visits, everyday items, and cash back. Double check your card’s rewards program to see what it offers, especially if there are any cash-back offers. A lot of times it is a credit on your bill.

When you should chose debit over credit:

1.       If you are on a budget: By using a debit card instead of a credit card when you are on a budget, you tend to be more mindful of what you actually spend because it comes directly from your account. You can set up with your credit union to opt out of any type of overdraft protection, so when you don’t have enough in your account your card simply won’t work.

2.       For the rewards: Debit cards can have rewards too. Sometimes retailers will offer incentives for those who pay with a debit card instead of a credit card to help save them money on some fees. River Valley offers cash back on some of our debit cards; all you have to do is make $600 in purchases each month to earn the cash back. And it is actual cash that is deposited in your account.

3.       If you are trying to reduce debt: Not using a credit card while you are trying to reduce credit card debt may seem like a no brainer, but you may be surprised at how often you reach for the credit card over the debit card. It is very easy to overspend on items when paying with a credit card. By reaching for your debit card you can begin to budget your expenses and get your debt paid off!

While both types of cards have their advantages, ultimately you should choose what works best for your lifestyle. I know I am a chronic over spender when I get the credit card out, so I try to keep it stashed away at home and only use my debit card. I would love to hear what you think about using a debit card vs. a credit card. Send me your thoughts at Val@rivervalleycu.org. For more savings ideas visit my blog at https://www.rivervalleycu.org/val