In an effort to manage debt, many people rely less on credit cards, and use debit cards more frequently to pay for purchases. Using a debit card may be a good idea, but there are instances where a credit card might be the better option. Let’s break down the different reasons to use a debit card and a credit card and why.
A Debit Card May Be Best If…
You want to improve money management habits. If you have a hard time sticking to a budget or living within your means, a debit card may be the best option for you to manage your money. When using a debit card to make a purchase, you are essentially paying cash which is better than taking on debt by using a credit card. And, if you struggle to pay credit card bills in full each month, a debit card will not add to your monthly interest fees.
You want access to cash. When you need cash, you can use your debit card at ATMs or get cash back at most point of sale purchases. Choosing the “cash back” feature at a point of sale will save you ATM transaction fees as well as a trip to your bank.
A Credit Card May Be Best If…
You make a big purchase. Using a credit card to buy a big-ticket item for which you’ve budgeted for, gives you a number of protections that a debit card might not. For example, credit cards offer cardholders dispute rights if there is a problem with the product purchased. Under Federal law, you can dispute the charge and, in most cases, the credit card company will pursue the issue with the retailer. Some credit cards may also offer extended warrantees on merchandise.
You shop online. Credit cards are a safer option when shopping online because if you encounter online fraud scammers, they won’t deplete your checking or savings accounts. And, unlike the federal protections for credit cards, your liability limit for a debit card depends on the situation and your promptness in reporting the lost card or unauthorized transaction to your bank.
You book a hotel or rental car. When you check into a hotel, they will often “hold” a specific dollar amount on your card. This means they put a hold on your credit or debit card for the cost of your stay plus additional funds to cover incidental charges should any happen during your visit. Once you check out, the hold is released when your final bill is reconciled and your account is charged.
If you use your debit card, you will not have access to the hold amount until the hold is released. Some rental car companies follow the same hold procedures.
Another bonus to using your credit card when booking a rental car is that most major credit cards offer rental insurance. There are variations in benefits and requirements on each card so be sure to ask about your card’s specific benefits.
You want to earn airline miles or a cash back bonus. Responsible credit card holders can earn miles for dollars spent. Many airline rewards cards offer mileage signup bonuses, which are often enough miles to put you 50-100% of the way toward a free flight. If travel rewards don’t interest you, look for a credit card that provides anywhere from 1-5% cash back rewards on your purchases.
You want to build credit. If you have minimal credit or are trying to improve your credit score, using a credit card responsibly may help your credit score because credit card companies report your payment activity to the credit bureaus. Paying with a debit card is like paying with cash, so payment history is not reported to a credit reporting agency. At Lakeland Bank, we offer customers the ability to check their credit score using Credit Sense. Not only can you use this resource to monitor your credit score, but also access your full credit report and customized tips to improve or maintain your score.
Knowing when to use a credit or debit card can help you make the best use of these financial tools. A credit card can protect your purchases from defects and failures, and handle disputes quickly without putting your money at risk, while a debit card can help you stick to your budget and keep you from increasing debt. Ultimately, it is up to you to decide which option is best for your financial situation.
At Lakeland Bank, you have access to both a debit card and credit card. To learn more about our personal banking products and services, contact us today. For more valuable information to improve your overall financial health, check out our other blogs.