Most people use credit and debit cards interchangeably, depending on how much money they have in their checking account or how much room they have on a credit card before they hit their limit and get declined. But the truth of the matter is that one may be better than the other. If you’ve been using your cards without really paying attention to what you’re doing, you may not be reaping the benefits of either. In fact, you might be incurring all kinds of debt that could be avoided if you stuck to just one type of card. Here a just a few of the benefits and drawbacks associated with both credit and debit cards; when you know the pros and cons, you can better make a decision about which is better for you.
In this economy, a debit card may be the way to go. Since you can only use it when there’s money in your checking account, it will definitely stop you from overspending and help you to live within your means. In addition, it’s a lot easier to carry around than a checkbook, and debit cards are generally accepted everywhere. Finally, it can provide you with instant access to cash (generally with no fee included – even if you can’t find an ATM associated with your bank, you can get cash back at many stores). Unfortunately, there is an obvious downside; no money in your account means you have no spending power. While this will certainly stop you from buying a lot of stuff you can’t afford (and probably don’t need), it could also mean you don’t have the funds available in case of an emergency such as an unexpected trip, a broken-down vehicle, or a visit to the ER. And of course, using a debit card will do nothing for your credit rating.
Credit cards, on the other hand, address many of the drawbacks of debit. The more you use them (and pay them off) the better your credit score will be (since they report to various credit bureaus). This means that when you go to buy a big-ticket item like a car or a house, you’ll have the score you need to receive approval. Credit cards will also ensure that you have coverage in case of an emergency. And as your credit improves, you’ll find that you get lower interest rates and higher spending limits (rewards for responsible behavior).
But credit cards have a dark side, too. They can be used to improve your credit, for certain, but if you misuse them, they can also destroy it. And many people are simply too irresponsible to be trusted with a credit card. You can’t look at the card as YOUR money; it’s a loan, and one that must be repaid. Failure to do so could end with fees, increased interest rates, and even debt collection agencies calling to harass you (not to mention black marks on your credit). And if you fail to read the fine print, you could end up paying for all sorts of things you never anticipated.
In truth, if you behave responsibly, there’s no reason you shouldn’t be able to enjoy the benefits (and avoid the pitfalls) of both of these cards. Using your debit card the majority of the time will ensure that you don’t get in over your head with credit card debt, but keeping a credit card handy, checking credit card reviews (and paying it off in a timely manner) will help to build your credit rating and ensure that you have funding in the event that you need it.
