These days, opening your wallet will probably reveal at least a handful of credit and debit cards. You might think it doesn't matter which plastic you choose to use for any particular purchase, but there are actually distinct situations in which you should choose one over the other.
In general, credit cards offer greater protection from fraud, making them the favorable choice in most cases. For example, with a credit card, you're only responsible for up to $50 of fraudulent charges. It's the same with debit cards only if you report the loss within two days; otherwise, you're liable for up to $500. In these cases, you can wait for your credit card company to resolve the matter without having to lose any money, whereas any debit card charge immediately deducts from your bank account, and you could be left waiting for weeks with an empty account before the bank restores your funds.
With that in mind, here are some instances in which it would be better to use your credit card:
- Building credit — Debit card use won't help improve your credit.
- Big purchases — Credit cards provide more protection should you be dissatisfied with a purchase and need to dispute it with the merchant.
- Rewards — Debit cards occasionally offer rewards, though it's much easier to find great rewards programs with credit cards.
- Online purchases and future travel — This is another safety issue; if somebody manages to acquire your debit card information via a security breach, your bank account could be drained instantly and for an extended period of time before you recover the stolen money.
- Gas stations or hotels — These establishments regularly "block" a higher amount on your card of payment than what they initially quote because they don't know how much you'll ultimately spend. This block usually goes unnoticed on a credit card but could temporarily freeze the funds in your bank account.
- When insurance is needed — Some credit cards include a limited form of insurance, so it's a factor worth considering though the policies typically cover very specific cases.
Conversely, there will be times when pulling out your debit card will be more advantageous. Using debit will likely allow you to be more budget-conscious.