Credit or Debit: the Choice is Yours

Credit Cards vs. Debit Cards: Which One Should You Use?

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When you're busy juggling your budget, how often do you use a debit card? How about your credit cards? When you can't pay cash, there are pluses and minuses to using both credit and debit cards. Credit card and/or debit card fraud can put a major crimp in your overall purchasing plans, so it pays to understand how each card really works.

Let's start with clear definitions of both debit and credit cards

It's easier to figure out which card to use — credit or debit — when you know what each card actually does. Here's a brief explanation of each:

  • Credit card – Think of a credit card as a line of credit issued by a lender, allowing you to take on debt. Once you accumulate that debt, a credit card allows you to pay it off all at once or over an extended period of time.
  • Debit card – A debit card IS NOT a credit card, even though they look just the same. In fact, when you use your debit card, it's exactly like writing a personal check. Most merchants accept debit cards, and they will ask you to enter a Personal Identification Number (or "PIN"), known only by you and your bank, so that the money can be taken directly out of your checking account.

What are the pluses and minuses of using credit cards and debit cards?

Before you determine your best payment method, remember this: Credit card fraud isn't new. And even though debit cards are a reasonably new invention, debit card fraud is fast becoming just as prevalent.

Keeping overall fraud concerns top of mind, here's a brief look at some of the pros and cons of credit and debit cards:

Credit Card Pros and Cons

  1. No PIN required – (PRO) If you don't have the best memory, for example, credit cards don't require a PIN. (CON) This can also be a negative, because the PIN does provide you with a financial safeguard; if you get ripped off, anyone can use your credit card to make purchases.
  2. Separate from your other accounts – (PRO) When you use your credit card, the money you spend actually comes from the lender — not your personal account.
  3. Freedom from liability – (PRO) If there's a problem with your purchase (say, if the item is broken or doesn't work properly after you buy it), your credit card company will cover you until that problem gets resolved.

Debit Cards Pros and Cons

  1. PIN protection – (PRO) If your debit card is stolen, as long as your PIN isn't stolen with it, nobody else can use your debit card to make purchases. (Reminder: Keep your PIN separate from your debit card at all times.)
  2. Part of your overall accounts – (CON) When you use your debit card, remember that it's part of your personal accounts. (Note: A lot of banks do provide protection for both debit and credit cards, and some can be used as both. Be sure to check with your bank for these details). If you mismanage your account, it could lead to bounced checks and overdrafts that may affect your overall credit history.
  3. Less chance of excessive credit card debt – (PRO) If you keep your banking records organized and carefully manage your checking account, you can avoid amassing too much credit card debt. And with interest fees on credit cards often an issue, keeping credit card debt down is always a plus.
  4. Liability issues – (CON) If your debit card is lost or stolen and a thief is able to use it (remember, some banks view debit cards and credit cards the same; your debit card, at times, can be used like a credit card), you could be liable for all the costs.

It's important to remember that while debit and credit cards may be very different to you, merchants view them very similarly. A lot of people will choose "credit" instead of "debit" when they get to the point of purchase, based primarily on how much they think they have in their checking account and whether or not their bank charges extra fees for simply having the debit card option. So while a debit card can be a convenient option — especially because it helps you cut down on check writing, paper clutter and the like — you do have to consider the risks of using it.

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