Credit Cards Or Debit Cards – What’s The Smartest Swipe?

Most people own at least one debit card and at least one credit card. Although it may not seem like it, the two have many differences.
Each time you use a credit card, you’re borrowing money. You’ll need to pay that money back to the credit union along with interest.

A debit card, on the other hand, transfers your own money from your checking account to the vendor you’re paying. The funds are taken directly from your account similarly to using checks — only quicker. Some processing terminals will require a PIN, and some will require a signature.

Both credit and debit cards are convenient, quick, and easy to use. They’re also safer than cash, which cannot be replaced if lost or stolen.

Which one should you use? The answer depends largely upon your lifestyle.

1. Budgeting

Credit cards allow you to buy now and pay later. This can quickly turn into a budgeting nightmare. Regular credit card use may not be ideal if you think you’ll be tempted to overspend.

However, it’s nearly impossible to incur thousands of dollars of debt through debit card usage. Most credit unions will cover purchases that put your account into the red, but only up to a few hundred dollars. If this happens, you’re accountable for your purchases and charged an overdraft fee.

2. Safety

If you report suspicious charges within 60 days, credit card companies must investigate and restore the funds if the charges are fraudulent. They also offer consumer protection on purchases. You can always cancel a charge if you are the victim of an online scam. This makes credit cards the ideal choice for large or fragile purchases that will be delivered to your home for additional insurance on the purchase.

Liability for debit cards is $50 if you notify the credit union within two days of seeing the fraudulent charges. After two days, your liability increases to $500. If you report the activity 60 days or more after it happened, you may be liable for all of it. Although many credit unions have implemented voluntary plans to limit customer liability to $50, no federal law requires them to do so. 

3. Rewards

One major draw for credit cards is the points awarded for purchases. That’s a strong advantage over debit cards. The ability to earn airline miles and the lure of a possibly free flight are attractive to many consumers. Of course, you may pay for those miles with a high interest rate or an annual fee.

Don’t get hooked on the points. Research each card carefully to ensure you’re getting your money’s worth.

4. Credit History

Credit cards help establish or restore good credit. Occasionally, using a credit card and paying your bill on time can improve your credit rating. This, in turn, improves the likelihood of earning favorable terms for home loans, auto loans, personal loans, and more.

5. Annual Fees and Interest

Credit card annual fees and interest add up. If you’ve overspent one month and cannot cover the entire amount due, you may need to pay only the minimum payment. More of your payment goes toward interest than toward lowering your bill. This makes the next payment higher.

If you don’t think you can pay your bills in a timely manner, limit your credit card usage.

As a Mutual Security Credit Union member, you already have access to fantastic rates and optimal security. To find out which debit or credit card is best for you, call, click, or stop by today!

Your Turn: In what situations do you prefer to use a debit or credit card? Why do you choose one over the other? Please share your thoughts with us!