Understanding which kind of card you should use depends greatly on your finances and your ability to manage them effectively. You also should understand some major points about each one, which will help inform your future purchasing.
Better Protection Against Fraud: Credit
When you use your credit card, the credit company pays for the transaction and you pay back the credit company with interest later. That means if someone steals your card, the credit company pays for whatever transactions the thief made while possessing your card. When you have a stolen debit card you can still recover the money, but it’s already been deducted from your account so you have to go without until things get sorted out. Similarly, if you make a big purchase and something is wrong with the product, the credit company covers the cost until you sort out the problem.
Smaller Chance of Debt: Debit
Because you’re not the one immediately paying for things when you swipe a credit card, it can be easy to get into the habit of swiping it for everything … and for buying more than you really need. However, when the bill comes around, the story is quite different. Since a debit card is the electronic version of writing a check, the money comes directly from your account. You can still overdraft, but it’s much harder to spend money that isn’t there, and keeping track of your finances with your debit card helps you live within your means.
Better Rewards: Credit
A few debit cards come with small rewards, but financial institutions don’t have much of an incentive to offer you rewards for using your own money. However, credit card companies have come up with some seriously good rewards to entice you to apply for a credit card from them instead of a competitor. These days you can find rewards that suit your needs. Points, cash back, or miles are all available. It’s worth noting that sometimes the cards with the best rewards can be pretty hard to qualify for if you have less than stellar credit, however.
Debit cards might have a few fees, but they have no interest rates. One of the biggest downsides of a credit card is the interest rates. They aren’t low. The average interest rate is above 14 percent, so for every 100 dollars you borrow, you’re giving the company $114 when you pay it back. Depending on your credit score and history, you can qualify for a lower interest rate. You can avoid interest rates if you pay your bill in full every time, but you have to commit to it, and it’s an easy habit to break. If you’re bad at paying bills, a credit card probably isn’t for you.
If you have a handle on your finances and a good credit score, credit cards offer many advantages. But if you’re the type to overspend and forget about bills, stick with your debit card.