When You Should Actually Use Debit Instead of Credit, Simplified

Many of us grew up thinking that you should only use credit very sparingly, like for emergencies and the rare large purchase. While it won’t necessarily hurt you to make most of your purchases with your debit card, there are some cases where using your credit card is much more advantageous and you could be missing out on a lot of benefits by not using your credit card.

Debit Cards

When you first opened your checking account, you were probably asked if you wanted to be issued a debit card. This is a card that connects to your checking account and allows you to pay for purchases just like cash. Because it links to your account, you’re spending money you already have (as opposed to the credit cards we’ll get to soon).

When is it a better idea to use a debit card?

• Making withdrawals from ATMs. Using a credit card at an ATM isn’t like using one for a regular purchase. It actually counts as a cash advance—a type of short-term loan—and is subject to a fee at the time the cash advance is made. It also doesn’t get the typical grace period that credit card purchases have before interest begins to accrue. A fee double-whammy.
• If there’s an additional fee for credit at the merchant. Merchants are charged fees for processing credit cards, and while most work the cost into their operating expenses, some will pass them along to consumers. You might be able to avoid these by paying with a debit card instead.
• If you’re paying down debt. If you have a lot of debt, you might want to try to not use your credit card for a while as you pay off your balance. This way you can focus on paying less in interest and improving your credit utilization, which will help boost your credit score.

Credit Cards

Many people, especially younger generations, are apprehensive about taking on debt. While not opening a credit card might sound like a safe plan, you’re doing yourself a disservice by not using credit cards for the financial tool they are.

Opting out of credit cards will likely make it much harder for you to build credit and have a robust enough credit history to have a credit score. Controlled use of a credit card is an accessible way to start building credit and doesn’t come with a big repayment commitment the way other loan products can. Establishing a solid credit history and credit score can be a dealbreaker when you’re applying for jobs, looking for an apartment, or buying a house.

Here are a few other times a credit card comes in handy and is an even better choice than a debit card:

• When you’re traveling. Credit cards often provide additional benefits, sometimes including travel insurance, rental car insurance, roadside support, and more. Make sure to check your cardholder agreement to see what your benefits include.
• Everyday purchases. There’s no reason why you can’t use your credit card for everyday purchases. It can even be a smart choice if you stick to your budget, pay off the card in full each month, and especially if you earn rewards for purchases.
• Large purchases. This is why many people start using a credit card. One huge benefit of a credit card is access to funds up-front that you may not have cash for. For example, you might not have $2000 in cash to use on car repairs, but you might have more than that as an available balance on your credit card. And because interest doesn’t begin to accrue for about 30 days, you can spread out repayment over several weeks before it starts costing you more.

 

Both debit cards and credit cards are important parts of your financial toolkit. The question you should ask yourself isn’t which one you should have, but when to use one over the other. By understanding the strengths of each payment method and choosing the right one for the situation, you’ll be able to maximize convenience, security, rewards, and credit-building opportunities. Explore all of our credit card options to find the one that fits your needs and can help you reach your next goal.