One of the biggest debates in the world of personal finance is whether it is preferable to use a
credit card or a
debit card. Of course, there is no standard answer. As with all issues in personal finance, whether you should use a debit card or a credit card comes down to your own preferences and your financial goals. But here are some things to consider as you make your decision:
Rewards
There are some debit cards with rewards, but these are few and far between. Many banks require an annual fee for your debit rewards program. One of the few debit rewards programs that is fee-free is the program offered by PerkStreet Financial. For the most part, though, if you want rewards, you have to go with a credit card. You can receive travel rewards, cash back, gift cards and merchandise with credit card rewards programs.
If you are interested in earning rewards, you should look for appropriate programs, and you should consider using a credit card, which can provide you with more access to a wider variety of rewards programs.
Interest and Debt
Many people are wary of getting into debt, and worried about the money they could waste on interest with a credit card. In such cases, it is usually better to stick with a debit card. While a credit card can be a great tool, and you can avoid interest by paying off your balance each month, many people find the allure of credit cards too great, and find themselves slowly falling into the debt trap. Using a debit card can help you avoid that altogether, requiring that you only use money that you have.
Fraud Protection
Anymore, most debit cards branded with a major credit card company logo provide fraud protection. It used to be that debit cards didn't offer the same protections, but many debit issuers now offer protection against fraud that is comparable to what you would see on a credit card, so many people are more comfortable with using debit cards, without worrying too much about fraudulent purchases.
When You Should Use a Credit Card
There are times when a credit card should be used. These times usually have to do with traveling, and with possible holds. A hold on your checking account funds can lead to an overdrawn account, and other problems. Here are some times when it is preferable to use a credit card:
- Renting a car: You often get automatic insurance coverage from the credit card issuer. Besides, most car rental places won't accept a debit card for rental.
- Hotel room: Hotels often place a hold of more than your bill. This could be a problem on your debit card. Use your credit card to keep your checking account funds free.
- International travel: Depending on the fees involved, it might make more sense to use your credit card. Plus, it keeps your checking account out of foreign transactions.
What do you think? Which do you prefer to use?