When to Use Credit Instead of Debit

You’ve probably heard a lot of financial professionals advise that using debit is always preferable to using credit. Their rationale? You don’t spend more than what is in your bank account if you just use your debit card (or cash) to make purchases.

That may be the case, but if you manage your money well, using a credit card is frequently the better choice. Here are some situations where credit would be preferable to debit.

If you want to fix your credit

Imagine your credit score is lower than you’d like because you made a few financial blunders while in college. As long as you use your credit card wisely, swipes can help your score rise. The credit reporting bureaus are not informed of debit card usage. You raise your credit score by using your credit card responsibly and making on-time, complete payments on your bill each month.

If you’re hoarding benefits

A lot of credit cards have great rewards programs where you can exchange points for things like airfare, hotel stays, home furnishings and appliances, or even college funds. Charge cards can be a smart approach to increase your income by being used for many (or perhaps all) of your transactions, including regular household expenses.

If you’re buying something expensive

Beyond what is offered by the manufacturer or the retailer, some credit cards give extended warranty coverage. You will immediately be covered if you use your credit card to pay for your new flat-screen television or refrigerator. (For further information, see your card’s terms.)

If you’re taking a trip

When reserving a hotel or renting a car, it’s advisable to use a credit card to make the payment. Why? When making a reservation, many hotels and rental businesses only take credit cards. If they do accept debit cards, they could want a deposit of a few hundred dollars. You won’t be able to access that money until the hold is cleared.

Second, using a credit card for travel-related transactions can provide you immediate access to benefits like gaining more reward points or getting free rental car insurance.

Whenever you shop online

When you make a purchase in a physical store, you take the item with you when you leave. Online purchases include some risk because you can’t inspect the actual item until it shows up at your door a few days later. When you order online with a credit card, you are protected in case an item is delivered damaged, was inaccurately described in its listing, or is lost in transit. (Consider negotiating a resolution with the merchant, or request that your issuer delay payment to the business.) If not, the money is taken out of your bank account right away once you enter your debit card account details to make the purchase. You are left without money and with little or no options.

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