Credit or Debit? Which Card Makes More Financial Sense?

We’ve reached a stage where our lives are dominated by pieces of plastic – credit cards are a regular feature of every transaction and purchase. Some people swear by it, but others are wary as it ends up putting them in a deep hole of debt. The latter prefer debit cards which work a little differently but which are able to keep you out of debt because you need to have money in the bank to use them. Credit or debit, both cards have their pros and cons, and how you choose to use either depends on your spending habits and personal preferences. In general:

You’re better off using credit cards if:

* You’re looking to build up a good credit rating
* You’re responsible with paying bills on time
* You pay off your entire bill amount every month instead of just the minimum amount due
* You carry more than one card and are able to compartmentalize your purchases according to work, personal, travel or similar categories, and pay off all the cards each month
* You’re looking for borrowed cash every month without having to pay an interest. You get to keep the money you have, and pay back your bills with your next salary.
* You want to keep track of your purchases.
* You want the incentives and gifts that credit card companies offer.
* You are aware of the APR, grace period and other terms of service before you sign up.
* You never use it for a cash advance – this transaction carries a high interest rate which kicks in immediately.
* You take advantage of co-branded cards where you get points for spending at their outlets.
* You are careless with your cards – while a debit card can be used to steal your money if it falls into the wrong hands, a credit card is more secure in that you can report it when it gets stolen and cut your losses. However, you can minimize your losses to $50 if you report your card or PIN as stolen within two days of discovering the theft.

You’re better off using a debit card if:

* You tend to splurge without a thought for the morrow when you go shopping.
* You cannot seem to pay your credit card bills on time and end up paying an interest every month
* Your credit card debt is accumulating exponentially
* You’ve had bad experiences with your credit cards
* You need to withdraw cash from your account at the ATM
* You are careful with your card and your PIN. Ensure that no one is watching when you swipe your card and enter your PIN when purchasing something.
* You’re using it to teach your child good spending habits.

At the end of the day, it’s your temperament, responsibility quotient and buying tendencies that count when you choose either a debit or credit card. Some people opt to carry both and enjoy the best of both worlds, so if you’re level-headed and understand the way both cards work, you could do it too.

Kimberly Peterson who writes about online accounting degrees. She welcomes your feedback at KimPeterson2006 at

2 thoughts on “Credit or Debit? Which Card Makes More Financial Sense?

  1. FYI, this article was scraped over at [removed by admin].

    My comment there (when I thought it was the original) was:

    I don’t see why tracking purchases and having multiple cards is a pro for credit cards. I easily do those things with debit cards.

    Also, according to studies, if you’re using a credit card, you’re more likely to spend more — even if you pay off your balance in full each month. That’s a ‘hidden fee’ I’m not willing to pay. And those rewards points? That’s part of the problem. You don’t think the credit companies offer those just for kicks, do you?

    Furthermore, perhaps the biggest benefit of using a debit card is not having to deal with the credit card companies. Even though I was a model customer by their standards, who never missed a payment and always paid more than minimums and still have a great credit score, they still kept finding ways to screw with me. Well, I’m done. Unfortunately, I do still have balances that I have to pay off, but I am not using credit cards again and I can’t wait till I am completely out of debt so I can tell them where to go.

  2. Meg, thanks for the information regarding the scraped content, the site owner has been contacted.

    Regarding credit cards, there’s no doubt that it depends on the individual. For me, I seem to get nothing but benefits from credit cards. I don’t spend more on a credit card than I did with a debit card, I pay the balance every 2 weeks, and they send me a check for a few hundred dollars every once in a while. Not to mention the extra protection.

    If you feel you get more benefits sticking with a debit card, by all means stick with a debit card. I don’t think one is better than the other, but one may be better for you than the other and one may be better for me than the other.

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