When to Use Credit vs. Debit Cards


Are you tired of hearing “credit or debit” when you go to pay for something at a store? I am. I hear it so often, I just automatically say “debit” when asked. I never think about what it actually means. It just seems easier to enter my PIN right when I swipe my card than waiting to sign at the end of the transaction. Silly, I know, but that’s just me.

But here’s the truth: There are times when using your credit card is definitely smarter.

First, here’s a little behind-the-scenes information that might help explain why the question is asked.

Using credit to pay for your purchases costs merchants more in transaction fees that they’re required to pay to Mastercard, Visa, and other credit card companies. Some merchants pass the cost of these fees on to you in the form of higher prices.

That’s why, when possible, be nice to small, local merchants by using your debit card instead of your credit card to save them — and you — money. (Debit cards don’t cost the merchant as much in fees because they’re as close to using cash as you can get.)

Learn more about the dos and don'ts of credit cards.

So what’s the bottom line? When should you opt for credit over debit?

Use your credit card when you’re:

  • Shopping online. It’s just safer and gives you more protection if something goes wrong.
  • Making large purchases for things like appliances or electronics. Credit cards often offer extended warranties.
  • Traveling or on vacation. You’ll often have access to discounts on rental cars or hotel rooms, and you may earn frequent flyer miles depending on the card you use. (These can be attractive perks on the list of things to look for in a credit card.) Just make sure to have your overseas purchases charged in local currency; read why here
  • Making recurring payments. Things like a gym membership or your cable bill should go on a credit card. It’s easy to forget about these payments so you don’t want them to hit your checking account when your funds are low.
  • Renting a car. The card may offer rental car insurance (yet another thing to look for in a credit card).
  • In an emergency situation. Car or home repairs, unexpected travel, etc. are difficult to budget for and most of the time using your credit card benefits you in these situations.
  • Trying to build a credit history. You cannot do it with a debit card. (Check out this helpful article on how to rebuild credit.)

Use your debit card when you’re:

  • On a tight budget and trying to keep a close eye on your expenses.
  • Getting cash back at a merchant.
  • In a foreign country and need cash from an ATM (the exchange rates are better this way!)

Credit cards are great when used responsibly and mindfully and credit card benefits can be a great perk. The key is to make sure you pay off your bill each month so you don’t accrue large interest payments or forfeit any benefits/rewards you'd receive by paying full.

Get smart now and make a conscious effort not to spend mindlessly. Be aware of what you’re buying, how much it costs and how you’re paying for it. That’s the best way to ensure your financial health.

Want to know what to look for when you're comparing credit card offers? Download our free guide to choosing a credit card here.

The Ultimate Guide to Choosing a Credit Card

Others are reading:

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About Author

Hanscom Federal Credit Union
Hanscom Federal Credit Union

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