Credit or Debit? How to Choose the Right Card

To credit or debit? That is the question.

Perhaps deciding between a credit card and a debit card at the checkout line isn’t nearly as dramatic as Prince Hamlet choosing between life and death, but it can still be quite the debacle for some people.

Check out some of the differences between the 2 and decide for yourself which card makes more sense for you to use.

Sizing each card up

In almost every physical aspect credit and debit cards look the same. Your debit card may say debit on the front, but both cards have expiration dates, a card security code (CSC) or a card verification value (CVV), and a card number. This is where the card’s similarities end.

Choosing debit

When you’re at the checkout and you use your debit card to pay you’ll be prompted to enter a 4-digit personal identification number (PIN). Upon entering your PIN the amount of your purchase is automatically deducted from your checking account.

To you, and to the person or company you’re paying, the debit card is as close to cash as you’ll get without actually paying in bills and coins.

When to use debit

Despite the safety of credit cards in certain instances, sometimes you might find it necessary to use a debit card. Debit is best when:

1. Payment is needed immediately

If a merchant needs to be paid instantaneously then it’s best for you to use your debit card so the money is immediately pulled from your account and placed into theirs.

When using your debit card, be aware of how much money you have in your account so you don’t get charged an overdraft fee or denied your purchase.

2. You have prior financial issues

If you’ve had money management problems in the past it’s probably best to avoid credit cards altogether and stick to using your debit card so you know exactly how much money you can spend.

3. You need cash back

If you need cash and there isn’t an ATM, or you don’t feel comfortable using one, you can make a small purchase and get cash from your account. The advantage to getting cash from your account this way is that you get to avoid ATM fees.

Choosing credit

Now if you’re at the checkout and you pay with your credit card instead, you’ll not be required to enter a PIN, but you will be prompted to sign for your purchase. After signing, the funds may or may not show up immediately, if you’re using online banking. The transaction may appear as pending or not show up at all for a few days. After it appears you will need to pay off the amount by the due date.

When to use credit

Credit can be a safer alternative to your debit card in certain scenarios. Credit is best used when:

1. You’re shopping online

When you make a purchase online with your debit card it will automatically be deducted from your account and you won’t have any item in hand to show for your purchase. If you have any problems with your purchase or your card number is stolen you’re at a higher risk to lose more money since it’s linked directly to your account. When making purchases online, reach for your credit card to decrease your risk of online identity theft and fraud.

2. You’re making expensive purchases

Big-ticket items are best purchased with credit cards because a debit card offers fewer protections. Some credit cards, not all, will offer extended warranties and return policies. In addition, a credit card will offer you dispute rights if something goes wrong with the product.

3. You’re reserving something in advance

If you’re planning a vacation for 6 months down the road and you choose to use your debit card, the cost of the trip will be deducted immediately–nobody wants that to happen. In addition, your card number will be sitting in a system for a significant period of time so you lower the risk of fraudulent activities if you choose credit over debit.

To credit, or not to credit?

The bottom line when deciding to use credit or debit card is choosing the one you feel more comfortable using. Credit cards offer you the advantages above in addition to reward points and the ability to build up your credit score. Debit cards can offer better control over your spending habits, and some even offer rewards.

Maybe you’ll stick to just one card or maybe you’ll use both. Just remember to keep track of the money in your account, and pay off your credit cards every month, to keep from going over budget and incurring fees.

Do you choose credit or debit?