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Should I Use My Credit Card or Debit Card?


Should I Use My Credit Card or Debit Card?

Most of us have our fair share of plastic in our wallets, purses or money clips.  We have one or more credit cards issued by organizations such as American Express, Discover, MasterCard or Visa as well as a debit card, typically issued by your bank.  When we go to pay for a purchase, we are often torn as to which card we should use and don’t really know why we should use one over the other.

Credit cards and debit cards often look almost identical in appearance but there are some key differences between them.  Let’s first understand what happens when we use them.

When you use your debit card, you are authorizing the merchant to deduct the amount of the purchase directly out of your checking account.  Your debit card is like a plastic check!  On the other hand, when using your credit card, you are using the credit card company’s funds.  In essence, you are taking out a short-term loan for the purchase.

So, now that we understand what happens when we use a credit card and a debit card, what are the advantages of using one over the other?  One benefit that both types of cards provide is protection against fraudulent use, but the advantage goes to the credit card in this case.  Let’s take a look:

  • Credit card

    • Under the Fair Credit Billing Act (FCBA) if your credit card gets stolen or lost, your liability for unauthorized use tops out at $50. Even better, according to the FCBA, if you report that your card is stolen before any unauthorized purchases are made, you will not have any liability.
    • If your credit card number is stolen but not your credit card, you are not liable for any unauthorized use. And this makes sense – how would you know your credit card number has been stolen until the scumbag who stole it uses it!
  • Debit card

    • Debit card protection is provided by the Electronic Fund Transfer Act and the level of protection afforded to you depends on how fast you act after your debit card has been heisted or lost.
      • If you report that your card has been stolen before any unauthorized use, you will not be responsible for any charges.
      • If you report the loss of your card within 2 days, the maximum loss is only $50. So far, so good, but this is where the credit card begins to look more attractive.
      • If you report the loss of your card after 2 days but less than 60 days post-loss, your maximum liability now can be as high as $500.
      • If you report the loss more than 60 calendar days after your statement is sent to you (which means you should look at those statements you get rather than filing them in a drawer somewhere), you are on the hook for all the funds taken from your account.


While protection against your card being lost or stolen is important, there are some other key advantages to using your credit card rather than your debit card including:


    • Using your credit card helps build your credit rating, assuming you are using your card responsibly and paying the full balance off every month. This is one of the best ways a young adult can build a positive credit rating.  A good credit rating also makes life so much easier when trying to secure a cell phone plan or rent an apartment.  On the flip side, the use of a debit card does not affect your credit history at all.

    • Another perk of using a credit card is that you can earn rewards such as a cash back or airline miles with every purchase.

    • A credit card also provides more “useability” or capacity, depending on your line of credit. Most individuals do not keep a lot of cash in their checking account, and the use of your debit card is limited to the balance in your account.  Your credit limit or the amount of credit you are authorized to use with your credit card is often significantly higher than your checking account balance and hence you have a greater ability to purchase goods and services.

    • Traveling with a debit card can prove problematic. As an example, if you use your debit card to “charge” your lodging expenses, you can potentially create problems for yourself.  Many organizations such as hotels and rental car companies will place a hold on your funds in the amount of the weekly stay at a hotel or the week’s car rental charge, plus some amount to cover incidentals.  If you have automatic withdrawals taken from your checking account to pay your monthly bills but the hotel you are staying at has placed a hold on, let’s say, $1000 for the week’s stay, your automatic payment may not go through as you had hoped.  Now you have other problems to deal with once you return from your vacation.  On the other hand, when using a credit card, your credit limit has simply been reduced by the amount of the hold.


So, in most cases, the better option is to use your credit card over your debit card, but you also need to be able to manage your finances responsibly.  Plan to pay off your credit card balance every month.  Interest rates on credit cards are quite high and leaving a balance on your card from month to month can lead to a situation where you can only afford to pay the monthly interest rate charges and never reduce the principal balance.  Also, make sure you don’t overspend.  This is the major advantage of a debit card.  Once you have emptied your checking account, there is no money left to spend.  However, as mentioned earlier, credit limits can be quite high and can lead to spending more than you can really afford to pay back.

Written by

Mark F. Kleespies, CFP®

Mark joined THOR in January of 1997, and is the head of the Wealth Management team. His primary duties include working directly with clients and strategically planning the direction of the firm. Mark is a member of the Financial Planning Association and is a Certified Financial Planner.

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