When to Use a Credit Card vs. a Debit Card

Many Americans have debit and credit cards that they use interchangeably when it comes to making purchases. While someone might decide to use their debit card for purchases that they have the money for and credit for ones they don’t, there is actually a better way to use your cards.

Here are a few scenarios in which choosing a credit card or debit card may be better.

Growing Credit

Growing your credit is a big deal and something that most will need to work toward at one point or another. Credit is important for financing and purchasing down the line, particularly major life purchases like a mortgage or car loan and even better credit card purchases down the line.

Using a credit card knowledgeably can help to possibly grow your credit score exponentially, potentially giving you better rates and opportunities in time.

If you’re starting from zero credit and working your way up, a secured credit card is a great place to start. With a secured credit card, you will put a deposit down to cover your credit line, which allows you to build credit safely as you can only access the funds up to your deposit. Debit cards do not offer the same benefits for growing credit.

Earning Rewards

When deciding when to use a credit or debit card, one thing to consider is the potential rewards you can receive or would be missing out on. If your credit card is best for everyday purchases such as gas or grocery and offers rewards for those purchases, consider exclusively reserving your credit card for those purchases and other purchases on debit cards.

On the other hand, if your credit card offers great rewards for travel bookings, reserving your credit line for those purchases means more room for rewards like cashback and upgrades. Generally, if you can receive points for it, put it on the credit card for the best benefits on purchases you already need to make!

Having Protections

Similar to the above benefit of using credit cards, some banks may offer additional protections if a purchase is put on the credit card. For example, credit cards will often include benefits like rental car protection, phone protection, extended warranties, and insurance on purchases. Most will even protect you in the case of fraud and disputes.

If you’re making a substantial purchase such as a brand new desk monitor, putting the purchase on your credit card may bring cashback rewards and additional warranties. By putting it on your debit card, there may be no rewards and no additional protections. Of course, if your credit card issuer doesn’t include any benefits, then this aspect may not be a deciding factor.

Making Big Purchases

While using your credit card for small purchases can add up to big rewards, some experts recommend reserving a portion of your available credit line for emergencies or big purchases. This can mean exclusively reserving a set amount of credit for emergencies or making sure to pay off purchases every month and carrying no balances.

If you decide to use a debit card for your everyday purchases and keep credit cards, or a portion, for emergencies, then you can live knowing that you have a feasible backup plan for any unexpected expenses that you could not afford with your debit card.

Avoiding Debt

If you’ve fallen behind on credit payments and have compounding debt, it may be best to charge all necessary expenses to your debit card that is linked with your checking account. This means you’re only accessing the money that you already have in your account, and not adding to future debt.

If debt is not an issue and you simply have the choice between debit or credit cards, then you can more freely choose between the options.