The Debit Card vs Credit Card Debate

We’ve all had moments where the temptation to “just charge it” is strong. Whether you’re tempted by the “Add to Cart” button, getting a start on holiday shopping or charging flights for that long-awaited vacation, credit can feel a little too easy sometimes. It’s that instant gratification of a purchase without breaking your budget. When you start to do the math, however, it becomes a little more complicated. From APRs to cashback perks, the benefits and drawbacks between credit and debit can start to feel a little fuzzy. Read on to learn more about making smart decisions – and when and why to use each. We promise, it’s less confusing than it seems!

Debit Card Pros and Cons

Debit Card Pros

When it comes to debit, you can’t spend what you don’t have. Unlike credit cards, which essentially borrow from the bank’s money, a debit card is directly connected to the money in your personal account. Because of this, there is no risk of racking up debt with debit. Using a debit card gives you a very clear and honest picture of where your money is being spent each month. Using a money-tracking app linked to your account can provide an even more in-depth overview of your spending habits. Unlike many credit cards, there are usually no fees associated with debit cards.

Debit Card Cons

While debit cards are debt-proof, they also lack some of the flexibility offered by credit cards. Because they are limited by the money you actually have in your account, they aren’t super helpful if you have large unexpected expenses or bigger purchases come up. Plus, if a hacker or thief is able to get into your account, you may be unable to access to your money for several days as the issue gets resolved.

Because you’re only spending your own money, there is usually no incentive for banks to offer rewards or cash back perks with a debit card. And since credit scores are meant to reflect your likelihood of paying banks back, using a debit card won’t help your credit score, no matter how responsible you are with it.

Credit Card Pros and Cons

Credit Card Pros

One of the best benefits of credit cards is that they can help you cover those emergencies or unexpected expenses. Whether an unplanned trip to the vet, mounting medical bills or a surprise car repair, a credit card (or personal installment loan) can help in the moments you need it most. Using credit to cover these costs keeps money in your bank account available to continue covering all your regular monthly bills, so you don’t drain it with one big, unexpected expense. When you do use your credit card, just remember to work toward paying it off as soon as possible in order to avoid accruing interest and debt.

Something else to love about credit cards are the rewards that many offer. (There’s a reason they call them “perks,” after all.) From airline miles and hotel points to cash back and ride share perks, there’s sure to be a credit card out there that offers the rewards you care about.

Unlike debit cards, credit cards also offer more robust fraud protection. If you notice unusual activity on your credit card statement and report it to your lender, they’ll often replace the stolen funds in as little as a day. Credit lenders want to make sure their customers feel valued and taken care of, so you can expect exceptional service in your interactions with them.

Responsibly using a credit card is also the easiest way to build up your credit score. By putting small, variable purchases on your credit card and paying them off each month, you can show lenders that you’re trustworthy and financially responsible, which in turn raises your credit score over time. Additionally, the age of your credit card account factors into your credit score, too. The longer you’ve had a credit card open, the more it shows that you have responsibly managed using and paying off loans, raising your credit score.

Credit Card Cons

The negative side of credit cards typically comes down to one thing: debt. When you aren’t able to pay off your balance each month, your debt begins to accrue interest – a charge for borrowing the bank’s money. This can quickly snowball into something less manageable than a moderate monthly bill. Some credit cards also have annual or monthly fees associated with using them. Sometimes fees can be negotiated or waived, but usually they represent the cost associated with the specific perks or rewards offered. It’s important to thoroughly read the terms before agreeing to any credit offer.

Another challenge with credit cards is that it can be hard to qualify for a card without a co-signer if you have bad credit or no established credit. That’s where we come in! At World Finance, we understand that you’re more than a credit score, which is why we look at your full financial picture when determining your available loan options. A personal installment loan from World Finance is a great way to access the money you need when you need it most. Even if you have a low credit score or no credit score, we’ll work to find a solution that works for you.

Ok, So When Should I Use Which Card?

Using Your Debit Card

When you go to an ATM, you can only withdraw the money you actually have in the bank. The same is true with a debit card. If you’re able to put recurring expenses like rent, mortgage or utility payments on your debit card without incurring fees, debit is the way to go. It’s also a great option for expenses, like groceries, that tend to stay pretty much same from month-to-month.

Using Your Credit Card

The most important and fundamental rule of using a credit card is never buy anything you can’t afford. You can use your credit card for bigger purchases, but be mindful about what you’re buying. Remember that the more debt you rack up, the more interest you will end up paying out in the long run. That $250 purchase you make today could end up costing you $500 if you don’t pay it off until a year from now.

It’s also important to remember that responsibly using credit can help you boost your credit score over time. If you use your credit to make small, manageable purchases you can pay off in full each month, you’ll eventually begin to see your score on the rise.

A few quick tips to keep credit card debt in check:

1. Treat your credit card like your debit card. Only buy things you know you have money to pay off in full.
2. Pay off your card every couple of weeks instead of once a month to keep a closer eye on your spending and pay off purchases faster.
3. Consider requesting a lower credit limit if you think you might be tempted to overspend. You can’t spend what you don’t have.

Disputing Online Orders

Because credit cards tend to have better fraud protections (and resolutions) in place should something sketchy happen, we recommend using your credit card for online shopping. If someone steals your credit card information, it’s easier to dispute the charges with your lender. And since it is credit, you won’t have lost any of your own money.

With a little time, practice and willpower, you’ll be on your way to responsible spending and credit use.

Miss out on our first budgeting blog? Check it out.