When to Use Your Credit vs. Debit Card (2024)

FAQs

When to Use Your Credit vs. Debit Card? ›

Credit cards can be especially useful if you need to make a large purchase or face a financial emergency and don't have enough cash available in your checking account. Debit cards, on the other hand, can be helpful for staying within your budget and not spending money you don't have.

Debit cards allow you to spend money by drawing on funds you have deposited at the bank. Credit cards allow you to borrow money from the card issuer up to a certain limit to purchase items or withdraw cash.

Key takeaways. A debit card is an easy and convenient way to make purchases without overspending. Using a credit card for larger purchases offers flexibility, but its crucial to prioritize timely payments to avoid accumulating interest.

When you use a debit card, the funds for the amount of your purchase are taken from your checking account almost instantly. When you use a credit card, the amount will be charged to your line of credit, meaning you will pay the bill at a later date, which also gives you more time to pay.

Be aware of any convenience fees you'll incur by paying your bills with credit cards. It's best to use credit only for products and services that won't charge a fee, and using cash, debit or bank transfer for the rest. And, of course, use a credit card only if you know you can pay off the balance each month.

Credit cards are safer to carry than cash and offer stronger fraud protections than debit. You can earn significant rewards without changing your spending habits. It's easier to track your spending. Responsible credit card use is one of the easiest and fastest ways to build credit.

If you overspend, you could get hit with costly overdraft fees: If charges to your debit card cause your checking account balance to go negative, you could suffer overdraft fees and other steep charges that far exceed the potential costs of using a credit card.

Since these purchases withdraw funds from your account immediately, debit cards may be a good way to ensure you don't spend more than you have. However, debit card transactions may cause overdraft fees and have limited fraud protection. Read more about debit card advantages and disadvantages below.

Why do people use credit instead of debit? ›

Credit cards often offer better fraud protection

With a credit card, you're typically responsible for up to $50 of unauthorized transactions or $0 if you report the loss before the credit card is used. You could be liable for much more for unauthorized transactions on your debit card.

If you don't have enough funds in your account, the transaction will be declined. When you choose to run your debit card as credit, you sign your name for the transaction instead of entering your PIN. The transaction goes through Visa's payment network and a hold is placed on the funds in your account.

If you find yourself struggling to pay off your credit card, using a debit card may be a better way to manage overspending. "If you have credit card debt, then putting routine purchases on a debit card would make sense in order to avoid going deeper into debt.

Higher interest rate: Many cards charge a higher APR for cash advances than for regular purchases. No grace period: Your credit card usually gives you a grace period of at least 20 days to pay off your purchase before you're charged interest. Cash advances, though, start to accrue interest from day one.

Credit cards help build your credit history. They offer rewards like cash back, miles or other rewards for your purchases. Offers better protection from fraudulent charges. When a fraudster uses your credit card, they are taking money from the issuer, instead of stealing directly from you and draining your bank account ...

Debit cards allow you to have the convenience of plastic without the risk of going into debt. Since you are using money from your checking account, you can only spend what you have available, making it a great budgeting tool. Additionally, debit cards offer some level of protection against fraud and theft.

Using a credit card carries risk, but there are many situations when it makes sense to use a credit card over cash, such as for convenience, card benefits, security, or rewards.