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It might seem like credit cards and debit cards are interchangeable. They look similar, they often tout the same logos and company names, and they’re usually in the same compartment of your wallet or purse. Therefore, it might feel like choosing one over the other is really a matter of which one you can reach first. The truth is, though, that credit cards and debit cards are fundamentally different. In fact, there are specific instances when one is better than the other. Here are some common situations when using one card over the other just makes sense:
When to Use a Debit Card
Cash Back. For those moments when you need some cash, using your debit card can be the quickest way to acquire it. After using your debit card to purchase an item, most merchants will give you the option to get cash. The only concern is that you have to purchase something first; it’s not recommended that you spend money just to access your money. If you don’t want to buy something, then consider taking your debit card to the nearest ATM; a quick withdrawal will give you the needed cash.
Track Your Spending. Using a debit card to make purchases can help you to easily track your spending. In much the same way that we used to use checkbooks to monitor our spending, a debit card can provide an itemized summary of where your money goes each month.
Limit Your Spending. Similar to tracking your spending, a debit card can be useful a tool for when you’re trying to budget or limit your purchases. Because the debit card is linked directly to your bank account, you are limited to the amount of money you actually have. Unless you are signed up for an overdraft protection program, you will be notified at the time of purchase that you don’t have enough funds for payment. This can be a great incentive to limit your spending and stay on track with your budgeting efforts.
When to Use a Credit Card
Online Shopping. When making online purchases, there’s often a risk for scams or instances of fraud. In these moments, the Fair Credit Billing Act can protect you and your money. There is similar support for debit cards, but the rules are more stringent and can take longer to process. Plus, if you use a debit card, then your money is already gone by the time you notice the fraud.
Recurring Payments. Nowadays, a lot of companies prefer customers to sign up for automatic payments. Instead of waiting for you to submit a payment, they have the funds automatically withdrawn from your account. Again, the Fair Credit Billing Act can give you increased protection if you use a credit card for these automatically recurring payments.
Travel Arrangements. Often times, hotels, airlines, and rental car agencies require a down payment or security deposit on purchases. Because plans change and arrangements get revised, using a credit card can mean that you can update your travel plans before the company takes your money.
As you can see, there are distinctive benefits to using a credit card or debit card. Most importantly, perhaps, is that there are clear differences between the legal protections afforded to users of each card; purchases made by credit card are offered more protection and are often easier to dispute . At the same time, a debit card can be an invaluable tool for someone who wants to be more intentional about their spending. Deciding which one to use should no longer be based on which card is easier to find; instead, think about your needs in that specific moment of purchase and plan accordingly.
Chase Sagum is the author of this article. You can see more of his articles at www.lexingtonlaw.com.
AB here again – what do the rest of you think?? I use my credit card 99.95% of the time mostly to keep track of everything – but Chase definitely makes some good points. Let us know what you think in the comments!
Thanks for the pic - StockMonkeys.com- licensed CC by 2.0