Debit v. Credit: When to Use Which Card

Debit v. Credit: When to Use Which Card

With all of the convenient payment options available to us now, the days of using cash to pay for everything are long gone. But which card - debit or credit - is best for making purchases? Well, the answer is, it depends. Read on, and we'll discuss which one is best for which situation.

(Want the information, but don't want to read the entire article? Check out our infographic on the topic.)

When you should use a credit card

When used responsibly, credit cards are a safe, easy way to manage your finances and give yourself a little extra buying power when you need it. Remember that if you don't pay your bill in full at the end of each billing cycle, you'll have to pay interest. Here are the most common situations when using a credit card is best.

When you're traveling

When you're traveling, using a credit card is the ideal payment method. This goes for everything from booking the trip to paying for your hotel and car rental. Why?

  1. When you travel, you need extra security in case your card gets lost or stolen. With a credit card, you have no liability for fraudulent charges, and you can cancel or freeze your card immediately. If this scenario happened with a debit card, the criminal could potentially wipe out your bank account, leaving you stranded until the charges can be reversed.
  2. When you're traveling out of the country, you'll get better rates for foreign exchange fees than buying currency with American dollars and using it in the country you're in. In fact, CVCU's Premier Rewards American Express Card has no foreign transaction fees at all. This card also offers nice perks for making travel purchases.
  3. Most good travel rewards cards, like the CVCU Premier Rewards American Express Card, will also offer travel insurance.
  4. Many car rental agencies and hotels only accept credit cards or, if they do accept debit cards, they will put a temporary hold on a portion of your funds as a "deposit," which freezes up money in your account. So, in this case, using a credit card makes the most sense.

When you're shopping online

Credit cards provide the best protection of any payment option out there. You're not liable for fraudulent charges on a credit card, so you don't have to worry about your card number getting lost or stolen. If you detect fraud on a credit card purchase, you can dispute the charge and get it reversed quickly. But if your debit card information is stolen, it gives the thief access to your bank account. You can also enjoy an extra layer of protection by using convenient online payment tools.

When you're making large purchases

Many credit cards offer warranty protection that go beyond the manufacturer's warranty. This is really useful when you buy electronics, appliances or other large purchases. In addition, most debit cards have a fairly low daily spending limit, so chances are, you'll have to call your financial institution to request a temporary increase when using a debit card to make large purchases.

When you want to earn rewards

If you have a credit card that earns rewards, you can turn your everyday expenses like gas and groceries into a positive. Just remember to pay off the total amount when you get your statement each month. Redeeming rewards can be a way to extend your budget for everyday or special items.

When you want to pay in advance

Say you are getting your annual performance bonus in a few weeks, and you want to use it to purchase a large item. You can charge the item to your credit card, then pay if off when your bonus arrives. This is a good plan if you're sure your bonus is coming, your spending doesn't exceed the bonus, and your credit card has a high enough limit for the item.

When you want to manage your expenses

Many people use credit cards as a convenient way to track spending and make purchases without using cash or checks. This is a good option for people who are disciplined and will not spend more than they can pay off each month. Be sure to pay your balance each month to avoid paying interest.

When you should use a debit card

When you want to avoid getting into debt

If you don't have any debt, using a debit card is a great way to stay out of it. Since your debit card is connected to a checking account, you can only spend what is in the account. A debit card can provide the same convenience of a credit card without the worry of accumulating debt.

When you want to pay for everyday purchases conveniently

Everyday purchases like gas, groceries, and eating out are relatively small purchases, and you don't have to worry about them breaking the bank.

When you need help staying within your budget

If you know you might be tempted to overspend, a debit card is definitely the best option for you. Again, when you use your debit card, the money comes right out of our checking account, so you can control where you spend your cash without having to worry about racking up a massive bill that you can't afford at the end of the month.