Ever notice that your debit card also has a Visa or MasterCard logo on it? Most debit cards also have a credit card functionality built in and not every consumer knows which one to use at all times. Are there instances in which credit is better than debit, or vice versa?
It has to do with the way debit and credit transactions are processed, and the perks that can come with each type of transaction. We’ll get behind the scenes and see how it all works—when we’re done, you’ll be the smartest shopper on the block.
Credit vs. Debit: The Different Types of Transactions
The main difference between credit and debit has to do with the way the transaction is processed after the fact.
While both options might result in twenty bucks coming out of your bank account for that blouse that you know you’re only going to wear once, the way the money is deducted from your account is what makes all the difference.
When you use your debit card, the verification comes from entering your PIN. The funds are pulled directly out of your bank account, pretty much instantaneously.
Credit card transactions, on the other hand, require a signature. These charges are then processed by the credit card company — usually Visa or MasterCard — and you may be eligible for the anti-fraud protections granted by a credit card.
Sometimes credit card transactions incur charges to the merchant, however, which might get passed onto you. This is the reason why some stores have a minimum purchase amount for credit or charge an additional processing fee.
When You Should Pay with Credit
Use credit when you’re shopping online. As mentioned, credit cards fraud protection features that can help you out by reversing transactions that you didn’t authorize.
They’re also good for buying electronics and other really expensive goods. Credit card companies often give you additional warranty coverage beyond whatever the manufacturer covers.
Vacations are another great time to use your debit card for credit purchases, as well. All that fraud protection will still cover you while you’re abroad and nobody wants to deal with identity theft while trying to enjoy some rest and relaxation.
When You Should Pay with Debit
Since it’s immediate, debit is better when people need money fast. It’s also great for when you’re trying to automate your finances and stick to a budget.
You can set up debit cards for certain types of transactions, which will then be denied after you’ve reached your monthly spending limit.
Debit cards are also a lot better for people trying to watch their spending and kick bad money habits.
It’s not as easy to incur debt and mess yourself up financially when you’re using a debit card, and when your bank account runs out of money your card will simply get declined.
It’s also better to use your debit card when you’re traveling abroad and you need cash. Using your debit card as debit often get you a superior exchange rate.
Share Your Personal Finance Tips
Do you have any great advice to add to the credit vs. debit debate? We’d love to hear from you! Tell us what you know down in the comments.
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