Experts: When To Use a Credit Card vs. Debit Card

young woman using a store credit card
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Both debit and credit cards let you shop online and buy things in person without using cash. They’re both the same size and shape, they both have 15- or 16-digit card numbers and they both might feature the same logo from a service provider like Visa or Mastercard. Six of one, half a dozen of the other, right? Not even close.

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“Although debit and credit cards may look the same, they’re very different financial tools,” said Laura Adams, MBA, a personal finance expert with Finder.com. “A credit card allows you to make purchases using borrowed money that you must repay with interest over time. A debit card allows you to make purchases using your money in a linked bank account.”

Responsible credit card use can earn you points, miles, cash back and other valuable rewards. They also help you build your credit and impress future lenders, which makes charge cards the right choice in many cases. Many, but not all. According to the experts, the following scenarios call specifically for one or the other.

Credit Card: For Small Recurring Expenses

If you have a few cards that you no longer use, but you don’t want to lose the open credit they provide, you can keep them in good standing by using them to pay small recurring expenses, like streaming subscriptions.

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“These services don’t charge much and ensure your credit remains open and active, which can help increase your credit score, provided you make timely payments,” said Tom Koesternen, a chartered financial analyst (CFA) and consultant for The Guaranteed Loans.

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Debit Card: For Purchases That Offer a Cash Discount

Some merchants will pay you back for letting them avoid the fees that come with processing a credit card transaction.

“Sometimes, paying with a debit card, or cash, can net you a discounted price,” said Freddie Huynh, vice president of data optimization with Freedom Debt Relief. “This is seen more often in the case of big-ticket items.”

It’s not just the pricey stuff. Some day-to-day purchases, like filling up at a gas station, also give cash discounts that you can earn with a debit card. In other cases, stores will reward you for foregoing credit cards. Target, for example, gives a 5% discount for linking your checking account to its RedCard debit card.

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Credit Card: For Financing Big Purchases 

It’s never a good idea to use a credit card to make purchases you can’t afford, but if you need to stretch a big-ticket item out into payments, the strategic use of plastic can get you there.  

“If you need to finance a large purchase that needs time to be paid off, a credit card is a good option,” said Lauren Davis, founder of the Moolah Project

But don’t just throw that grand piano on a card with a 24% APR. Davis advises this strategy only with cards that offer a 0% interest introductory period so you can finance the purchase for free.

Debit Card: When You’re Trying To Rein Yourself ln

If credit cards have enabled irresponsible spending, there’s nothing like watching your bank balance shrink with every purchase to keep you in check. 

“Because debit cards are linked directly to your checking account, it’s harder to overspend and get into debt,” said Lucas Solomon, a business and personal financial consultant and founder of FX4Biz. “If you’re trying to avoid using credit cards or getting into debt, using a debit card can help you stay on track.” 

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Credit Card: Any Time a Deposit Is Required

Some transactions require a deposit upfront if the final bill is uncertain at the time of purchase. In some cases, like renting a car or a hotel room, a credit card is required. But even if the merchant will take a debit card, credit is usually a safer alternative. 

“When you need to pay a deposit for goods or services, such as renting equipment or travel reservations, using a credit card allows you to dispute a charge and get your money back if needed,” said Adams.

Debit Card: For Withdrawing Cash

When you use your credit card for a cash advance at an ATM instead of your debit card, you’re not withdrawing money — you’re financing a very expensive short-term loan. Not only do cash advances typically come with higher APRs, but they don’t qualify as introductory APR purchases and can trigger interest to start accruing on balance transfers. 

Cash advances should be a last resort for only the direst of emergencies. 

“If you do use your credit card to withdraw cash, the fees charged are not only high but also it is not a good move from a credit score perspective,” said Damian Serwin, budgeting expert and co-founder of Why Budgeting. “Lenders look at this as you are unable to budget your money in the right way.” 

Credit Card: Shopping Online

There are very few situations where it makes sense to use a debit card for e-commerce. In the case of online fraud — which is a very real risk — it’s a whole lot easier to get a credit card company to cancel a purchase than it is to get a bank to refund stolen cash. 

“Having your debit card information on the internet is risky, making credit cards a better option when shopping online,” said Koesternen. “While debit cards are chip-enabled and help deter in-person fraud, the chip is not very effective in protecting you online. So, avoid saving your debit card information online or choosing it as a preferred payment method.”

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.
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