Debit Cards and Credit Cards: When to Use Which and Why

Almost everyone has a debit and a credit card, and many people have more than one of each. Each has is its own unique advantages and disadvantages, and if you plan to be smart with your money then it’s important to know the difference.

A debit card is generally attached to a checking or savings account which means that you only have access to funds available in your particular account. Due to the way that many banks work your money may not always be available when you need it, and this can sometimes result on overdraft fees.

A credit card is issued by a bank or other institution and gives you a certain amount of credit. You are authorized to spend up to that amount and are then expected to pay that bill on a monthly basis. Credit card companies set up and minimum payment which is a portion of the amount spent, and if you don’t pay the entire balance the company attaches interest charges. These charges vary from card to card and from person to person.

So when is a debit card better than a credit card, and vice versa? In order to keep track of your spending and properly manage your budget, these are some ways to know the difference and make the most of your cards.

Credit Cards

Credit cards are not only incredibly convenient, but proper use of them has financial benefits that can extend for your lifetime. If you are vigilant about your spending habits and pay your bill in full each month, credit cards can be one of your best monetary assets.

There are certain situations when using a credit card is absolutely better than a debit card. Credit cards often come with certain perks and bonuses that debit cards don’t, and here’s how to take advantage of that.

Car rentals. If you utilize rental cars often or plan to do so, always use your credit card for the deposit and payment. Since car rental companies can place a hold on a portion of your card’s available limit, this frees up cash from your bank account for other expenditures. Credit card companies also offer insurance when they’re used to rent a car, which can save you from paying the insurance cost the rental company levies. Check with your card company to be clear on their policies.

Major appliances. When you purchase a major appliance it comes with a manufacturer’s warranty, but when you use a credit card for the purchase you’ll usually have extra protection from the credit card company. This can come in very handy if you ever have to deal with a reluctant manufacturer when your appliance suddenly stops working.

Debit Cards

Debit cards are wonderful to have for many reasons. One of which is the fact that it relieves you from the burden of carrying cash, and allows you to safeguard your purchase. Because a debit card is tied to your available funds at your bank, there is little risk that you can overspend. However, some banks do allow customers to spend beyond their available funds, and that’s when expensive overdraft fees come into play. Here’s how to use your debit card smartly.

Small purchases. If you’re simply running into a convenience store for a snack or a bottle of water, by all means use your debit card. The few dollars that you’d spend in situations like these do not warrant the use of a credit card. However, if you have a credit card that offers bonus points at gas stations or similar places of business, you may want to rethink that choice.

Consider a separate debit account. As we all know there are certain risks associated with using debit cards, the greatest of which is known as “skimming”. This occurs when hackers infiltrate ATMs or POS machines and skim your data when you use your card. This can result in a nightmare as you try to get everything rectified.

One way to minimize the risk is to open a separate checking account and keep that money separate from the funds that, for instance, you use to pay your monthly bills. If you only use this special debit card with limited funds, like a card specifically for what you have in your PayPal account, then if your data is skimmed you won’t be as badly hit as you would if that account held all of your money.

Knowing when and where to use your different cards is a great way to stay on top of your spending and to ensure that you always have your finances in order. You’ve worked hard for your money; spend it wisely.