Credit or debit? That's a question we often hear when we're shopping. We may automatically default to one choice, so it's easy to forget that not all plastic is the same.
When you have both a debit card and credit card in your wallet, which one should you use, and when should you use them?Here are four reasons to use your credit card, and four more reasons to use your debit card:
Here are four reasons to use your credit card, and four more reasons to use your debit card:
Advantages of credit cards
- Points. Credit cards can offer amazing points that net cash, travel, or shopping rewards.
- Protection. Purchases made with credit cards are protected after the first $50. That means if your account information has been stolen and a thief goes on a spree on Amazon or at BestBuy, you are not responsible after the first $50. Credit cards, however, charge cash-advance fees of up to 5 percent of the amount withdrawn, plus interest rates that can average 6 percent higher than that for purchases.
- Perks. Many credit cards offer great benefits on purchases, including extended warranties, car rental insurance, and purchase protection.
- Building credit. Carrying a balance less than 30 percent of your limit, plus timely payments, can help build a strong credit history. This is critical when you're buying a home or car, applying for a job, or renting an apartment.
Advantages of debit cards
- Less debt risk. Since money to pay for purchases made with a debit card come straight from a checking account, it's a lot harder to rack up debt. A great option for those lacking in discipline.
- Discipline. If you're especially prone to impulse shopping or ignoring your budget (or not having a budget at all!), debit cards can force you to spend within your means.
- No fees. But not always. For example, not all credit cards have annual fees, and your bank or credit union will likely charge you overdraft fees when you spend more with your debit card than your checking account allows.
- Cash is usually free. There are many options to withdraw cash from an ATM using your debit card for no fee. Typically, banks and credit unions allow clients to use their own ATMs for free, and some even reimburse fees charged by other institutions. Credit cards, however, charge cash-advance fees of up to five percent of the amount withdrawn, plus interest rates that can average six percent higher than that for purchases.
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