Credit Cards or Debit Cards

Credit cards are often used as a matter of convenience rather than need. It’s easier and sometimes safer to pay for some goods and services with a credit card than it is to walk around with wads of money in your wallet. They’re a matter of convenience too because you get to thoroughly review your credit cards statement before paying it, which gives you time to go over each line item very carefully. If there is suspicious activity, you can alert your credit card company right away. If there has been fraudulent activity, your credit card company will oftentimes reverse the charges or hold any accruing interest on that particular charge until the matter has been investigated.  Credit cards also make it easier for you to budget and spend, especially if you’re accustomed to recording your exact transactions.

With debit cards, they are too a matter of convenience, but that convenience is recognized in a different way. With debit cards, you can only spend what is available on the card or in your bank account. In other words, if the dollar amount is not available in transferable cash, you are prohibited from making the transaction. There is no “extension” granted to you or other withdrawals. Only what is available is what is accessible.  However, debit cards can bring you a lot of convenience, especially if you prefer NOT to use your credit cards and you have cash in your debit card account.

So, which one is better to use? When? Why?

Is there really a question when it comes to whether or not to use credit cards versus debit cards? Many would think so, especially considering the sometimes exorbitant rates that accompany credit cards. With interest rates that can sometimes go as high as 33%, using a credit card can be extremely costly to do. However, with credit cards, if you carry a balance over from one month to the next, you may find yourself with a “growing” bottom line instead of a shrinking one. This means mounting debt that can sometimes be overwhelming. But for the highly-disciplined individuals who can and do pay their credit cards off from one month to the next, this is not a problem, and they never have that insurmountable, hard-to-conquer-debt problem.

Also, like what was mentioned earlier, using a credit card in lieu of a debit card is the ultimate fraud protection. If there is suspicious activity on your account, you are only obligated to pay the bank for the charges that you ARE in agreement with. The other amount(s) are placed under investigation until it’s resolved. And until that time, you are not responsible for them. This is a great thing to have happen if there is a fraud situation, as it does not tie up your funds for lengthy periods of time.

By contrast, if someone gets a hold of your debit cards and makes a fraudulent transaction, that money is immediately deducted from your bank account. Although there are some financial institutions that provide policies and protection for some cases, in general, once the funds are gone, they’re gone. It’s far easier to pay a credit card balance with money that you DO have than it is to try and recoup money that really is yours!

A credit card also helps individuals to build a solid credit history and reputation. Credit cards can also be used as payment holders to book hotels, rental cars, concert tickets, etc. If there are circumstances surrounding the purchase that would cause there to be refunds, it’s much easier to eliminate that transaction from the credit card than it is to request refunds from a rental car pre-payment or to cancel an airline flight reservation.

Instances where it’s not wise to use credit cards are the times when the person knows that they cannot or will not be able to repay the balance within 30 days, or 60 days at the most. This is when interest rates start to climb exponentially and can become overwhelming. For situations where discipline and reasoning are necessary, credit cards should be avoided and debit cards used instead. Of course, that is, within reason as well.