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When to Use a Debit Card Instead of a Credit Card

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When setting up a checking account with a bank or credit union, you’ll usually receive a free debit card that allows you to pay for expenses straight from your account. A debit card enables you to make secure and instant purchases in-store or online, as well as make cash withdrawals from ATMs.

In contrast, credit cards are a payment option in which you have to apply first. You’ll be approved or denied based on credit score, income, or even your fixed housing cost. These factors are all considered to determine how much your line of credit can be.

Besides this, the major difference between a debit and credit card is where the money gets pulled from when you make a purchase. For instance, when you use a debit card, the funds are automatically removed from your checking account. However, with a credit card, you’re given a line of credit and what you spend is added to a statement balance which you must pay off every month (or else you can face hefty interest fees).

There are pros and cons to both forms of card payment; however, there are certain instances of when to use one over the other. Read on to learn more about when to use a debit card instead of a credit card.

You Want to Manage Spending Better

One of the main reasons people use debit cards is to help manage their spending and stave off debt accumulation. Anytime you use a credit card, you essentially add on debt to your credit account until it is paid off. With a debit card, it is easier to not overspend since there is a finite amount of money in your checking account. However, there is such a thing as overdraft fees if you happen to reach the bottom of the barrel.

By keeping a vigilant eye on what is coming in and out of your checking, it’s often more manageable to budget your expenses. With credit cards, racking up debt can become a problem that some find to get out of hand over time. 

You should use a debit card for daily expenses, such as gas, groceries, pharmacy, and more. These purchases are trackable and manageable versus using debit cards for large vacation trips (unless you’re going abroad and your credit card has foreign transaction fees) or expensive items. For these more significant expenses, using credit cards can be more beneficial to you.

You Need to Access Cash Fast

Another instance in which you should use a debit card instead of a credit card is when you need to access cash quickly. It’s true that you can use both forms of card payments to get cash from ATMs. However, it is considered a cash advance when you use a credit card in this situation. As a result, you’re immediately charged a high amount of interest on the transaction. Sometimes, even more than if you don’t pay off your statement balance from month to month.

That’s why you should always use a debit card to retrieve cash from an ATM. There will still be a small fee if you use an out-of-network ATM; however, if you’re in a pinch and can find an in-network ATM—the transaction will be completely free. Still, the out-of-network fee is not nearly as expensive as when you use a credit card to withdraw cash.  

You Can Avoid Merchant Fees

When using a debit card, you can also avoid merchant fees that businesses typically charge credit cards. If a debit card isn’t charged a processing fee, it is often the better choice. Additionally, you may prefer using a debit card when making an international purchase if your credit card charges foreign transaction fees. Make sure to double check to see which fee is lower when traveling abroad.

You Don’t Want to Pay Annual Fees

A common positive of using a debit card is that you don’t have to pay annual fees. Many credit cards often have great rewards, but tote significant annual fees. Sometimes there is a surcharge added to a transaction for the ease of spending with credit, or a transaction will cost you in interest. As mentioned before, this is often the case at an ATM, or even when paying taxes or when paying a tuition bill. Why pay extra when you don’t have to?

The Bottom Line: Debit vs. Credit

All in all, it’s helpful to be as informed as possible when learning how to spend your hard-earned money. Debit is most advantageous when making everyday purchases and for withdrawing cash from ATMs. However, credit offers more anti-fraud protection and improves your credit score as you use it. Hopefully, this has helped you in boosting your financial literacy and deciding when to use a debit card instead of a credit card.

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