When to Use Debit or Credit?
The words "debit" and "credit" are two financial terms constantly thrown around. When it comes to credit cards and debit cards, the two are completely different. To add to the confusion, debit cards can be used as debit or credit. Whether you're wondering if you should use your debit card or credit card, or if you should use your debit card as credit, the answer is the same: it depends.
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Debit Card: Debit or Credit?
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While debit cards can be used as debit or credit, the final purchase price is always pulled from your checking account. The fundamental difference between using a debit card as debit or credit is debit requires a PIN, while credit requires a signature. Debit transactions typically appear instantly in your bank account, while credit transactions may take a day or two to post. Many financial institutions offer rewards for using your debit card as credit, such as cash back on your purchase or reward points.
Also, you can use your debit card to get cash back at some retailers. If you need cash and you don't have access to your bank's ATM, debit is the best choice. If you don't need cash back and your financial institutions offers rewards for credit purchases, use your debit card as credit. MasterCard and Visa offer zero liability protection to debit card users that use their debit card as credit.
When to Use Debit Cards
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Debit cards should serve as your main payment method for everyday expenses unless you're using cash. Groceries, gas and entertainment, for example, should be paid for with the use of a debit card. Paying for everyday expenses with a debit card keeps your budget in check and doesn't allow you build up a mountain of debt on your credit card. One of the golden rules to owning a credit card is to never purchase something if you can't afford it. Using a debit card for most of your purchases is the best way to adhere to that rule.
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When to Use Credit Cards
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Credit cards are best used for purchases that aren't part of your standard budget. Home entertainment systems, vacations and furniture are a few examples of purchases that you don't make daily, weekly or even monthly. However, whipping your credit card out before a large purchase isn't automatic. If your current finances won't let you pay off the balance within two to four months, it probably isn't a good idea to use your credit card. The interest rate could cause your balance to balloon to an unmanageable level.
When You Don't Have a Choice
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There are times when you don't have a choice between debit and credit. Some retailers, such as those that market themselves as bargain stores, don't accept credit cards. On the other end of the spectrum are the retailers, agencies and organizations that don't accept debit cards. Car rental agencies and hotels are notorious for accepting credit cards only. Some hotels may accept debit cards, but they often place a hold that can exceed $100. Some gas stations also place a hold on debit cards. Holds generally get released with one to two weeks.
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References
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