Credit Cards vs. Debit Cards

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Debit Cards: Two ways to use yours

When you shop with your debit card, you’re often asked, “debit or credit?” Here are the differences:

Debit: You need to use your PIN (personal identification number) to complete the transaction. The debit option can be used at ATMs and with merchants who accept debit cards.

  • Use this option when you withdraw cash from an ATM

Credit: You’ll need to sign a receipt like you do with a credit card. But, unlike a credit card purchase, the money is withdrawn directly from your account—it is not a loan. The credit option can usually be used if your debit card has a Visa® or MasterCard® logo.

Use this option for:

  • Most purchases since it may give you extra fraud protection and rewards
  • Purchases at merchants that don’t allow an additional cash back withdrawal.

It all comes from the same place. Whether you use the debit or credit option, all purchases made with your debit card are withdrawn directly from your account.

Note: You can use it as a “credit card”, so you assume that it helps you build credit, right? Unfortunately, bank accounts only show up on credit reports if you have negative activity, such as overdrawing your account and not paying back your financial institution. Otherwise, you will never see your checking account on your credit report in a positive state.

What’s great:

  • Convenience: You don’t need to carry cash or write checks. Plus more cash-only retailers now also accept debit cards.
  • Help avoid interest charges: When you pay with available funds in your account, you’ll avoid the interest that can come with buying on credit. If you’re trying to get out of debt—or avoid getting into it—a debit card can be a good way to go.

What’s not:

  • Overdraft fees: You have to be careful not to spend more than is in your account.
  • Security: Keep in mind that there may be differences in fraud protection features of debit cards and credit cards, particularly because debit card purchases are withdrawn directly from your checking or savings account.
  • Caution: You’ll need to safeguard your debit card as carefully as your cash. If your card is lost or stolen, report it to your bank immediately to help prevent unauthorized access to your checking or savings account.

Credit Cards: When to use yours

A credit card only offers the credit option-a loan you’ll pay back in the future.

What’s great:

  • Financial flexibility: You can make a large purchase, consolidate debt or get emergency funds and pay for them over time, in payments that fit your budget.
  • Rewards: You can often earn rewards on purchases when you use a credit card that offers a rewards program.
  • Security: This is safest way to shop online since credit cards have stricter limits to fraud liability. Some credit cards also offer purchase protection or extended warranty protection on most of what you buy, online or off.

What’s not:

  • Too much debt: Be conscious of what you’re spending—and the fact that you’ll have to pay it back—so you don’t get into more debt than you’re comfortable with.
  • Interest and fees: Keep in mind that, if you don’t pay your bill in full every month, you’ll be charged interest.

Take Action Now

Only you can decide whether debit or credit cards (or a combination of both) are the best choice for your life and financial priorities. There are advantages and disadvantages to each.  Now that you understand the differences, you can make a more informed choice.