Debit or Credit? When to Use Each

Debit or Credit? When to Use Each

Debit card use overtook credit cards many years ago, and when combined, card use tower over cash. According to 2020 research from Fundera, 54 percent of consumers prefer making purchases with debit cards, compared to 26 percent who prefer credit cards and just 14 percent with a preference for cash. Still, they each have their place, and sometimes personal preference should take a backseat to which one is the smarter decision.

While reducing reliance on credit cards may help control overspending, there are times when making a purchase with a credit card makes good financial sense. Here are some suggestions for when to use debit instead of credit and vice versa.

Why use debit cards
Paying with debit cards is like writing a check without holding up the line. They’re as convenient as credit cards, but you don’t have to worry about paying the bill at the end of the month (or interest and fees if you’re late).

Just be sure to watch your checking account and make sure funds are available before using your card. It’s also a good idea to look at overdraft protection that links your checking account to your savings account or line of credit in case you purchase something above and beyond the amount in your account.

Why use credit cards
Responsible credit card use also helps you build a good credit history. It shows that institutions are willing to give you credit and that you are prompt at paying your debts.

It can also be difficult to rent a car without a credit card—most rental companies require them to make a reservation. Likewise, some hotels won’t book rooms to travelers who want to pay with a debit card or cash. If they do, they may place blocks on debit accounts, which could keep you from using your card for other purposes.

They're a good choice when you’re shopping online. You can dispute the charge if something you purchase doesn’t turn out the way you hoped. If a fraudulent charge shows up on your bill, you can refuse to pay it. Federal law limits your liability to $50 of fraudulent charges. There’s also limited liability for debit cards, but it becomes more complicated to dispute a charge.

Using cash isn't always possible or even a good idea. Knowing when to use debit and when to pull out your credit card will help reduce fees and control spending.

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