Choosing Between Credit and Debit

When it comes to choosing whether to pay for a purchase with a credit or debit card, many people just use whichever card their hand lands on first.  Others have unsupported suspicion of or prejudice against either credit or debit, and only use one or the other.

There are reasons to use both, however, occasions when use of a credit card would be more beneficial or when a debit card might be a better choice.  The key is to understand the fundamental difference between the two, what using credit or debit can do for you, and the consequences of using one or the other.

The Basics

The best way to differentiate credit from debit is this: credit is borrowed, debit is owned.  When you pay with credit you are borrowing a bank’s money with the promise that you will pay them back (with interest); debit purchases are made with money you already have.

Beyond that basic distinction, credit and debit behave differently in the marketplace.  Ideally, you should use a balance of credit and debit for purchases, but that balance can be hard to strike.  Here is a brief guide laying down basic rules for credit and debit card use:

Credit cards should be used for:

  • Online shopping.  Credit card transactions aren’t completed the moment you make them — first the bank has to approve the purchase, and then the funds are delivered to the vendor.  It is wise to use credit cards when shopping online because you can protect yourself and your purchase by asking your bank or credit card company to withhold the funds if a purchase is wrong, damaged, or malfunctioning.  If the problem is never resolved, money will not have ever exchanged hands, where if you had paid with a debit card, you would have to get a refund after the problem was fixed, which can be much more difficult.
  • Large purchases.  Many credit cards offer warranties on your purchases that extend beyond the manufacturer and store warranty.  Of course, not all credit cards offer this perk, so check with yours before you make a large purchase, but if they do, it is definitely worth using credit.
  • Building credit.  The bottom line here is that you can’t build credit with a debit card because buying things with your own money doesn’t suggest to banks that you are a responsible borrower.  So when you want to buy a house for the first time, but have never used a credit card, you will most likely be denied by banks because you don’t have a credit history.  The best way to develop a positive credit history is to use a credit card and make your payments on time.


Debit cards should be used for:

  • ATM withdrawals:  You can withdraw cash from any of your bank’s ATMs for free when you use your debit card.  Most credit cards, on the other hand, will charge you for a cash advance if you use it to withdraw cash from an ATM.
  • Interest-free purchases: The biggest downside to using credit is that you are charged interest for you purchases because you are borrowing money from a bank.  You won’t accrue any interest on any purchases with a debit card, and you also won’t ever buy anything you can’t afford, because your limit is set by what you actually have.
  • Small purchases: Generally anything under $50.

Now, these aren’t hard and fast rules, and some people certainly are successful by doing different things, but following these rules is a good way to start using credit and debit correctly, until you have a thorough enough understanding to make more informed decisions.


This guest post is contributed by Katheryn Rivas, who writes for online universities blog.  She welcomes your comments at her email Id:


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