Using a debit card for all your purchases, allows you to avoid debt and interest, annual fees and credit checks. But never using a credit card can have serious consequences.
Credit cards help you build credit and often come with better fraud protection and rewards than debit cards. Here’s what you need to know, and why you might want to consider opening a credit card.
Debit cards have several protections
Debit cards instantly withdraw money from your checking account when you make a purchase. That works for legitimate purchases, but it can quickly become a problem with fraud, vendor disputes and hold-ups. Any shortfall from illegal purchases could affect your ability to pay for important expenses and risk causing overdraft fees.
There is federal protection for debit cards, but credit cards often offer more protection. When you swipe your credit card, the money doesn’t actually come out of your checking account, which can help you avoid bounced checks and missed bills.
Many credit cards also have $0 credit policies for unauthorized charges so you don’t have to pay anything in the event of fraud.
Debit is usually too weak to get rewards
The decision between a debit card and a credit card isn’t just about securing purchases and having more flexibility with the money in your checking account. Credit cards also offer the best rewards, such as cash back on purchases, travel rewards, sign-up bonuses and various other benefits.
While you shouldn’t spend money just to maximize your rewards, these rewards programs often allow you to save on travel, subscriptions, electricity and more. But if you don’t pay your balance in full every month, high annual percentage rates (APRs) can negate the benefits of rewards programs.
You can compare some of the best credit cards to get started. It’s best to evaluate cards based on how you spend money and what benefits you can use the most.
When the debit is still reasonable
Debit cards can help people avoid debt and overspending and establish good financial habits. A debit card may make sense for someone who makes a lot of ATM withdrawals and less in-person purchases.
However, you’ll likely get more mileage on credit cards for larger purchases, and they can be more secure for online shopping. Credit cards can be very convenient for recurring subscriptions as you don’t run the risk of overdrawing your account.
If you use a debit card, be sure to set up account alerts so you know when your balance drops. You should also have a buffer in your checking account so you don’t have to worry about whether you have enough money to complete a given purchase. As with any account, be sure to use strong passwords and report suspicious activity immediately.
You don’t have to replace your debit card with a credit card. Knowing their strengths and weaknesses can help you decide which one is right for you, and when it makes sense to use one over the other.
