Debit Cards vs Credit Cards: When To Use Each One

Debit Cards vs Credit Cards: When To Use Each One | The Loaded Pig

A debit or credit card may be better suited to use depending on the circumstance. Before we discuss when you should use the different types of cards, let’s go over the differences between them. A debit card is connected to a checking account, so when you use it, the amount is deducted from money that you previously deposited in your account. Debit cards can be used at ATMs and at in-person and online retailers. On the other hand, when you use a credit card you are borrowing money from a credit lender, like Visa or American Express, and you’ll have to pay the balance back.

Online Purchases

Online purchases are riskier than in-person purchases because someone can more easily steal your card info. Credit cards offer more protection for fraud because if someone makes a purchase with your credit card they are essentially spending the lender’s money and you have time before your bill is due to report the fraudulent transaction. If there is a fraudulent purchase made with a debit card, your money is almost immediately taken out of your account and it can take quite some time to report it and get the money back. If you have the option, you should always use a credit card for purchases made online.

Small Purchases

Some retailers have a minimum amount you need to spend in order to use a credit card because the merchant has to pay a processing fee as a small percentage of the total with credit card transactions. If you have no option but a credit card, then these retailers may even charge you a fee. You’ll either have to buy additional items to get to the minimum to use a credit card or you’ll have to suck it up and pay the fee. For this reason, a debit card is more convenient for small purchases. Alternatively, if you don’t feel comfortable carrying a debit card with you, you can carry a small amount of cash in case you find yourself in this situation.

Large Purchases

Rewards Credit Cards | Debit Cards vs Credit Cards: When To Use Each One | The Loaded Pig

Most credit cards offer cash back or points rewards and that’s why many people use credit cards for every purchase that they make. However, using a credit card is especially important for large purchases because you could really miss out on these rewards if you opt to use a debit card instead. Usually the percentage back or amount of points vary based on the type of store you’re making the purchase at (grocery store, gas station, restaurant, etc.). Some credit cards even offer additional warranties for electronics purchased with them, so you should check the fine print of your credit card to see if that’s offered.

Hotels & Rental Cars

Hotels and rental cars will place a hold on your card until the final payment is due. This amount is essentially frozen to ensure that they get paid and it can vary from the final amount. This is not a problem for credit card users as the hold is generally less than their credit limit, but for debit card users the amount will be unavailable to use. Some hotels and rental cars may not even accept debit cards.

Rental sites like Airbnb and VRBO may also place a hold on a credit or debit card or as an alternative they may charge you a security deposit that is refunded after your stay if the property is not damaged. Credit cards are better to use at hotels (and rental sites) and for rental cars because your funds will not be tied up like they would be if you used a debit card and you can continue to use your credit card without worrying.

In most cases, it is advantageous to use a credit card over a debit card. However, there may be some instances at a retailer when you’re making a small purchase that you are unable to use a credit card without paying a small fee. It’s best to have a credit card and a debit card in your possession. If you are responsible and pay off the balance of your credit card each month then having a credit card will help your credit. Beware of racking up a credit card balance as this will hurt your credit score and you will have to pay interest. If you don’t have a credit card yet, learn about How To Pick The Best Credit Card For You.

Read our article, 7 Traps To Avoid With Credit Cards, to learn how you can be a successful cardholder and improve your credit.

Financial freedom begins with good habits.

Rebecca & Tiago,

Rebecca co-founded The Loaded Pig with the goal of helping people achieve their financial goals. Her passion for financial freedom has landed her on US News & World Report,, Cheapism, and many other sites. Rebecca earned her Master of Business Administration from the University of Florida and her Bachelor of Arts from the University of Miami. She is currently a professor in the business department at Broward College.