When should I use my credit card vs. debit card?

Many people are fear of using credit cards because of the risk of overdrafting, high interest rate and fraud. Some of these worries are not necessary. Nevertheless, when we need to swipe our cards, we should choose between credit card and debit card wisely depending on the situation.

Best situations to use credit cards:

  1. Shopping online: Credit cards are highly recommended if you are shopping online. Purchasing by debit card is just like paying cash. It is hard to get your money back once someone else makes a purchase by your debit card online. However, if you purchase by credit card, it is NOT like paying cash. Many credit card companies offer “zero liability” policies, which means that if you dispute a transaction within a few days that wasn’t authorized by yourself, you needn’t pay for it.
  2. Making large purchases: The credit liability policy also works pretty well for large purchases. In addition, some credit card companies offer warranty policies that go beyond the manufacturer.
  3. Making reservations, buying tickets: Many companies only accept credit card online reservations because of safety concerns. Also, it is possible to get discounts or cash-back when you use a credit card to make reservations.

Situations to use debit cards:

  1. Purchasing a small amount of goods: Debit payment is similar to cash payment, so it is more convenient to use a debit card to make routine purchases than a credit card.
  2. Automated payments: some types of payments can made automatically by using a debit card, which can make your life more convenient.

It is still risky to use a credit card without carefully planning. Nevertheless, using credit cards has a lot of advantages that debit cards do not have.

Written by Bowen Song, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.