Should You Use a Credit Card or a Debit Card?

August 21, 2019
Shawn Lane
Consumer Credit Expert

When it comes to credit cards, people have strong opinions. You’re probably either a fan of credit cards and the perks they provide, or you may prefer not to use them at all. 

If you’ve ever struggled with credit card debt in the past, you may be afraid to trust yourself with them again. But there are a few reasons why you should probably at least consider it. 

Building Credit
When you manage credit cards the right way, they have the potential to help you build better credit for the future. This is important because credit scores have a big influence over many areas of your life. Debit cards, which don’t appear on credit reports, do not offer this perk. 

Of course, in order for a credit card to potentially help your credit scores instead of hurting them, you’ll need to follow these rules:

·     Always pay on timePayment history is the most important factor when your credit scores are calculated. 
·     Pay your balance in full. Paying off your full credit card balance (before the statement closing date) can help you to keep a low
revolving utilization rate. This can be good for both your scores and budget. 

Better Fraud Protections
Federal law protects you when your credit card or debit card is stolen or used fraudulently. However, the protections you enjoy are more robust when it comes to credit cards. 

When a debit card is stolen, your personal funds are tied up while the bank sorts through the fraudulent transactions made on your account. You could be without access to the money you need to pay your bills and cover expenses for several days. You could also be held liable under the Electronic Funds Transfer Act (EFTA) for $50 of any fraudulent charges reported within 2 days and up to $500 of those reported within 60 days. 

For fraudulent credit card charges, the Fair Credit Billing Act (FCBA) caps your liability to just $50. Currently the major credit card issuers waive this fee as long as the fraudulent charge is disputed within 60 days. 

Here’s the key difference. When your credit card is stolen, the bank is fighting to get back its own money. When your debit card is stolen or hacked, you’re fighting to get back yours.

Debit Cards Don’t Fix an Overspending Problem
The chief argument most people offer for using debit cards over credit cards is that credit cards encourage overspending. This simply isn’t true. You’re in charge of your budget, no matter how you choose to pay for purchases. 

If you’re worried about overspending on credit cards, consider the following approach. 

·     Keep a running ledger to track how much you can afford to spend on your credit cards each month. (Use an app or keep it simple with a 3×5 card or note on your smartphone.)
·     If $1,000 is what you’ve budgeted to spend for the month, start the ledger there. 
·     Next, subtract each purchase from your ledger. 
·     Once the $1,000 is spent, the credit card is off limits until the following month. 

Using a debit card or cash won’t fix an overspending problem. It just forces you to be more proactive about your budget (or do without something you need until your next paycheck). There’s no reason you can’t budget and enjoy the benefits of a credit card simultaneously. 

Remember, a credit card is just a tool. You get to decide how to use it. 

Click here to schedule a free credit analysis with an FRS credit consultant today to learn more about how our team can help with your credit goals.