If you’re like most Americans, you have a mix of credit and debit cards in your wallet and probably a bit of cash. Do you find yourself wondering which card to use when it comes time to make a purchase at the gas station or grocery store, or when it’s time to pay your cable bill? If so, you’re not alone. There are considerable differences between credit and debit card transactions. You should always compare the advantages and disadvantages of each card type, so you can determine the best times to use a credit card, and when a debit card may be a better choice.
So, let’s see which card wins, debit or credit, in the following situations.
1. Staying Out of Debt
Winner: Debit Card
One of the best reasons to use a debit card is to avoid going deeper into debt. Americans rely heavily on their credit cards these days, and as a result, many are carrying high levels of debt. In fact, the average American household now carries $16,000 in credit card debt from month to month. If you’re having issues with debt, the best way to address it is to stop relying so much on your credit cards. Instead, make all your day-to-day purchases with a debit card tied directly to your checking account. This ensures that no additional purchases you make add to your already-high debt levels, and it could give you a fighting chance to start paying off those high balances on your credit cards.
2. Online Purchases
Winner: Credit Card
Online financial crime is rampant these days; unfortunately, if you rely heavily on your debit card when you’re buying items from a new website you just heard about, you may be vulnerable to fraud, theft, and other illegal activities. If a thief gains access to your debit card info, all the money in the checking account that card is attached to may be at risk. If you find out about it too late, it may be difficult to recover any of your stolen funds. This may be the reason that debit card fraud is currently on the rise.
On the other hand, your credit cards aren’t directly tied to your savings or checking accounts, so thieves who gain access to your cards cannot steal any funds that directly belong to you. All they can do is charge a debt to you against the credit card account. Additionally, many of the popular credit cards offer excellent fraud protection. The best cards limit a borrower’s liability in the event the card is stolen or used fraudulently. So, find a credit card that offers excellent fraud protection, and use it whenever you purchase something online.
3. Hitting the ATM
Winner: Debit Card
Most people make frequent use of ATMs to get cash. In fact, about 40% of Americans withdraw money from ATM’s 8-10 times each month. Whenever you need to make a withdrawal from an ATM, it makes more sense to use a debit card, assuming you have the money on hand in your bank account. After all, whenever you use your credit card to withdraw cash, you’re actually borrowing money from a lender and accruing an interest expense. Other than a potential ATM fee, which you can often avoid if you draw funds from an ATM affiliated with your bank, withdrawing funds via your debit card doesn’t actually cost you anything.
4. Paying Taxes and Utilities
Winner: Debit Card
When you have to pay a tax bill of any sort, you should always use a debit card. Municipal, state, and federal governments often charge a convenience fee on tax bills paid with credit cards. It typically equates to about 2% of the overall tax bill. However, if you use a debit card to pay your taxes, there’s usually just a flat fee of about $3 for the transaction. Using a debit card when it’s tax time can definitely save you some serious cash in the end. To save even the small debit card fee, just pay via check.
Similarly, you should also use your debit card when paying your electrical, gas, or water bills, as public utilities are often permitted to charge an additional fee when you use a credit card. Additionally, whenever you use a credit card to pay for your utilities, you’re going to rack up additional interest charges unless you pay off the entire balance, which can eat into your household budget significantly over time.
Choose Your Plastic Wisely
Credit and debit cards each have advantages and disadvantages, depending on the situation, so you should always take a second to think about the best way to make a payment. Using the tips here can help you determine the best way to pay a bill or tab. They can also help you avoid unnecessary expenses and keep your bank account safe from fraud or theft, which will give you something even more valuable than money: peace of mind.