Tips for When to Use Your Credit Card or Your Debit Card


Many debit cards that banks issue to account holders can now be used alternatively as credit cards. Using a debit card as a credit card offers the same benefits and drawbacks of using an actual credit card instead of a debit card. Either way, in most cases, it is wiser to pay with a credit card instead of a debit card or, if using a card that offers both options, paying by credit instead of debit. The truth is that there is a rarely a difference between paying by credit or debit in terms of how it will affect you, the consumer. However, in the instances where those differences arise, they can make a considerable difference in how much you pay and how it affects you down the line. There are times when each type of payment, credit and debit, are better to use than the other, the most common and impactful of which are listed below. In all cases, the key to remember is that debit card transactions are processed immediately as cash and credit card transactions can take several days to complete processing.

When to Use a Credit Card

When You Make a Large Purchases or Online Purchases

Credit cards offer fraud protection on purchases whereas most debit cards do not. Check with your bank to see if your debit card actually does include any fraud protection, and if so, compare it to that which your credit card provides. In most cases, you will find that the fraud protection offered by your credit card company can give you greater confidence when purchasing consumer electronics, home appliances, furniture and other high-ticket items. Credit card companies also frequently offer warranty protection on certain items, like electronics, whereas debit card providers do not. The same protections typically apply for online purchases as well.

When You Go on Vacation

Fraud protection can also come in handy when you are away from home. If your card gets stolen or if you use an unsecure ATM, then you can at least rest assured that you will not be held accountable for those charges once the crime is reported. Furthermore, some airlines, hotels and other travel industry businesses may not accept debit cards.

When You Are Trying to Rebuild Your Credit

If you have just gone through a foreclosure or bankruptcy and are now attempting to restore your credit, using a credit card can help you do that. Conversely, debit card transactions, being processed like cash, do not appear on your credit history. If you use your credit card responsibly, however, and make at least the minimum payments on time, if not paying off the entire balance each period, then you can go a long way toward restoring your good name as a creditworthy individual. People repairing their credit from all sorts of situations often use a secured card in order to start this process.

When Your Credit Card Offers Perks and Rewards

Many credit cards offer cash back on certain types of purchases or perks like travel miles and restaurant discounts. If you hold a card that offers such a benefit, then it may behoove you to take advantage of it any opportunity you get. Unless some other reason listed here compels you otherwise, use your rewards credit cards whenever you can to get more for your money.

When your Bank Imposes a Limit on Debit Card Transactions

Many banks impose limits on holders of certain types of accounts regarding how many debit card transactions can be made in a period, such as a day, week month or year. With these types of accounts, account holders are generally charged a fee for every debit card transaction above and beyond the limit. If you have expended all your free debit card transactions for a particular period, then it would be wise to avoid paying an unnecessary fee for going over that limit and use your credit card instead.

When to Use a Debit Card

When the Recipient Needs to Receive Payment Immediately

If you are making a payment to a local merchant, such as an owner of a small ‘mom and pop shop’, an independent contractor, or other individual or business that needs the money right away, using a debit card will ensure they receive payment immediately. Similarly, if you were denied service or services you had been receiving were cut off and could only be approved or restored upon immediate payment, a debit card would remit payment right away whereas a credit card could take several days to remit payment.

When You Do Not Want to Pay Credit Card Fees

Many people are averse to credit card fees and therefore only make purchases when they have the full amount of the purchase price available. Spreading the cost of a purchase out over a period of months, as with credit, comes with a cost in interest and potential credit card fees. If you miss a payment, you could incur even more fees and thereby raise the amount on which additional interest is charged.

When You are on a Budget

Whether you struggle with finances and are trying to get a better handle on your money management skills or you are an old pro with a system in place, you may prefer to use debit on all transactions instead of credit solely because it gets treated as cash. If you do not have enough cash in your account to complete a purchase, that purchase is denied and you avoid paying interest and fees later for spending outside your means now. (Note that this only works if you do not have overdraft protection on your account which covers the overdraft amount, up to a limit, but for a fee.) Additionally, in cases of debit cards that double as credit cards and given that credit card transactions often do not complete for several days, it can be much harder to manage the cash on hand sitting in your bank account.

When the Merchant Charges You Extra to Pay by Credit

Given that vendors are typically charged a fee for each credit card transaction they process, they will often pass this cost onto consumers, either through a higher price or an added ‘processing’ fee. Moreover, some merchants will charge a credit card fee for purchases totaling less than a certain amount.