Do you think there are certain purchases that make better sense to use the credit card over the debit card?
No doubt that debit cards are still main plastic used for shopping, because as consumers we choose to spend below our means (that is your reason right?). But the question popped up in my thoughts the other day when I was making travel arrangements to San Francisco. It dawned on me that I use a credit card everytime I travel. But why?
For me, I enjoy the ease in tracking expenses on one card and I have a limit available that exceeds my travel budget should an unplanned expense occur (this does not mean an unplanned shopping excursion. This is more related to unplanned transportation and hotel charges that could occur; like if your roommate can’t pay their share of the room charges due to a gambling loss).
Keep reading. Let’s look at when you should or should not use each type of plastic.
For Big Purchases
You don’t want to buy, say, a laptop or other bit-ticket item with a debt card, especially if you purchase it online. Credit cards allow you to withold the payment if something goes wrong with the purchase, and the issuer will often investigate the problem for you. With a debit card the money is deducted from your checking account immediately, and it will most likely mean it is up to you to resolve any problems with the merchant.
Some credit cards, including American Express Cards, add up to a year to the manufacturer’s warranty on the products you buy with them. You can also get additional protections against fraud, identity theft, damage, or plain old theft. Many credit cards offer complimentary travel insurance, car rental loss and damage insurance, and 24-hour travel, roadside, and emergency assistance.
For gas, hotels, and rental insurance
Retailers like auto rental companies, restaurants, gas stations, and hotels are likely to put a hold on the money in your checking account until a debit transaction is processed, with might take up to several days. What’s more, the amount that is blocked is usually much higher than the amount of your purchase. If you don’t plan accordingly, these hold can prevent you from accessing the funds in your bank account and result in bounced checks, declined transactions and overdraft charges.
To earn rewards
Not as many debit cards have rewards programs, and the programs of the one that do aren’t as good as those of credit cards. Usine your debit card won’t maximize the amount of cash back or points you can earn. Rewards credit cards, however, tend to have the highest interest rates, so unless you pay off your balance in full each month, you shouldn’t use one.
Under federal law, your liability for fraudulent charges on a debit card can be greater than it is for a credit card. You’re are responsible for up to $50 in unauthorized purchases on your credit cards. But with a debit card, you can lose up to $500 if you don’t report the theft or loss of your card or PIN within two business days of discovering the problem.
Use a debit card…
Debit cards are fine for small purchases. such as groceries and other everyday purchases. You should also be inclined to spend less using debit, since you generally know how much is available in your bank account. Debit cards may also curb the tendency to spend more to earn rewards, a problem for some people with credit cards.
Debit cards have become even better for budgeting now that new federal rules require banks to get your permission to allow overdrafts made with debit and ATM cards and charge fees for those transactions. But the rules, which took effect for new cards on July 1 and for existing accounts on Aug. 15, don’t cover overdrafts from checks or recurring transactions, such as automatic bill payments.
Are you pro credit card or debit card? And why?
(photo credit: Flickr)