How to Determine When to Use a Credit Card or a Debit Card

When making purchases online, it's best to use a credit card because you can dispute the charge if your goods are damaged.

The use of credit cards and debit cards is undeniable. Credit cards make spending easy and convenient. Debit cards are also convenient, but limit your spending to what you have in your checking account. There are pros and cons regarding when to use each type of card. It pays to spend some time thinking about how you make your purchases. Debit cards come with greater security risk, but you cannot accumulate debt by using them as you can with credit cards.

Instructions

1. Use your debit card wisely. If you are in the habit of running up a large unpaid balance on your credit card, consider using your debit card. Using your debit card can break you of the habit. With a debit card, you can only spend money you have. Many people use it as a way to curb spending.

2. Use a credit card if you want the best security protection. Credit cards have more legal protection than debit cards. If a thief gets hold of your credit card information and uses the card for purchases, you can dispute fraudulent transactions and might not be responsible for paying.

3. Pay down credit card debt by switching to a debit card. Do not use your credit card at all during this time. After you pay off your credit card, start using it again but don't run up a balance; pay it in full each month.

4. Use credit cards when you are buying big-ticket items or expensive services such as auto repair, says personal finance author E. Thomas Garman on Bankrate.com. Credit cards are usually better when ordering items online because you can contest the charge if your purchase arrives damaged.

5. Use debit cards to pay for every-day expenses such as gas or groceries. Be sure to record your debit card transaction in your checkbook or make a habit of checking your balance online or by telephone.

6. Use a credit card if you want to establish credit history. Payment history is one of the biggest factors in determining your credit score and securing future credit.

References

• CNN Money: Just One Word: Plastic
• Privacy Rights Clearinghouse: Paper or Plastic: What Have You Got to Lose?
• Kiplinger: The Case for Cutting Out Credit Cards Completely
• Bankrate.com: The Ins and Outs of Debit Cards