When Should I Use a Debit or Credit Card?

Debit or credit? Find out what payment type Money Girl recommends for your purchases.

Laura Adams, MBA
2-minute read

When Should I Use a Debit or Credit Card?You’re in line at the grocery store or shopping for a gift online. What type of payment should you use, a debit or credit card?

Here are 5 reasons why I recommend the responsible use of a rewards credit card for the majority of your purchases:

Reason #1: Fraud protection

Many people don’t realize that if your credit card or just the card number is stolen, your maximum liability for any amount of fraudulent charges is just $50.

With a debit card, your liability is unlimited, depending on how quickly you catch the fraud and report it. That means the entire bank account balance linked to your debit card is potentially at risk.

Reason #2: Build credit

Using a credit card is one of the best ways to maintain or build your credit. The trick is to never allow your balance to exceed about 20% of your credit limit. This will give you a favorable credit utilization ratio that demonstrates responsible use.

Since a debit card isn’t a credit account, using one never helps or hurts your credit.

Reason #3: Rewards

There are a wide variety of rewards credit cards that allow you to rack up cash back or points to use for travel, purchases, gift cards, or gas. Even if the card charges an annual fee, the value of your rewards can easily surpass that cost.

On the other hand, there are few debit cards with rewards that rival credit cards.

Reason #4: Purchase protection

Credit cards offer purchase protection that allows you to reverse charges for unsatisfactory goods and services when the merchant won’t help you. So they’re particularly good to use for large purchases, even if you can pay cash. Instead, use your cash to pay off the credit card bill.

Debit card issuers typically do not work as an advocate for you to resolve a poor customer service experience.

Reason #5: Extra insurance

Many credit cards offer extra perks while traveling, such as supplemental insurance for car rental collision, trip cancellation, lost luggage, and accidents. Plus, they may give you extended product warranties on new purchases. These types of coverage are rarely offered when you make charges using a debit card.

Other Links You Might Like

Credit Score Survival Kit - a free tutorial to help you build credit fast!

The Pros and Cons of Using Debit Cards

Know the Differences Between Debit, Credit, and Prepaid Cards

Identity Theft and Your Wallet—7 Items to Purge Now

Connect with me around the web on Facebook, Twitter, and Google+

Click here to Download 2 Free chapters of Money Girls’ Smart Moves to Grow Rich

Get the Money Girl Book!

Looking for more money advice or a great gift? Pick up a copy (or several!) of Money Girl’s Smart Moves to Grow Rich. It tells you what you really need to know about money without bogging you down with what you don’t. Get the ebook version or paperback at your favorite book seller today!

Online Shopping and Credit Card image courtesy of Shutterstock

About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.