Choosing Between Debit and Credit Cards

Cardholders make a lot of choices. First they must choose whether or not to apply for a card. Then they have to decide which card they want. Their choices include 0% interest cards, reward cards, charity cards, and so forth. But now there's another choice for cardholders to make: debit or credit? Which card suits your needs better? Is one payment method superior to the other?

Debit Cards

Debit cards are a convenient choice for everyday purchases. You swipe them at cash registers and gas pumps just as you would a credit card. Debit cards pull money straight from your bank account. There is no interest involved, and no monthly payments to worry about. If you tend to carry a balance on your credit cards from month to month, debit cards might be a good alternative.

Still, buyers should pay careful attention to their bank balances when using debit cards. Most debit cards won't be declined until you're overdrawn by hundreds of dollars, and each overdrawn transaction will cost you big.

Also, debit card users aren't subject to the same amount of purchaser protection that credit card users enjoy. For example, purchases made with credit cards can be reimbursed if the merchandise turns out to be shoddy. When you buy something with a debit card, you're pretty much stuck with the purchase unless you can get an old-fashioned refund from the seller.

Credit Cards

Credit cards offer variety, perks, and consumer protection. They also come with the temptation to make purchases now and pay for them months later. If you're not careful, it could even take years to pay off that family vacation or Christmas shopping spree! The number one rule for credit cards is this: Pay your balance in full every month. If you don't, interest rates and finance fees will inflate the cost of your purchases.

For those who pay off their monthly balances, credit cards are good financial tools that offer benefits not found with debit cards. For instance, some credit cards offer cash rebates for daily purchases like groceries and gas. Others help frequent travelers rack up free airline miles. Special-interest credit cards put money toward a variety of good causes, from college funds for children to veterinary care for pets. Still others donate a portion of all purchases to the charity of your choice.

Credit cards offer other bonuses as well. Many provide rental car insurance and roadside assistance. Their greatest benefit is the protection they offer against fraud. If someone uses your credit cards to make unauthorized purchases, you won't be liable for the costs. Also, if you purchase an item that turns out to be faulty, you can receive a reimbursement from the credit card company.

Are credit cards superior to debit cards, or vice versa? The answer depends on what kind of buyer you are, and what kind of perks you want. If you'd rather not deal with monthly payments, debit cards are a good choice. But if you want to build up your credit score and enjoy some rewards along the way, credit cards are your best bet.