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When to use a credit card or debit card

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Debit and credit cards allow you shop online and buy things in person without using cash. They are both the same size and shape, they both have 15 or 16 digit card numbers, and they can both sport the same logo from a service provider like Visa or Mastercard. Six of one, half a dozen of the other, right? Not even close.

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“While debit and credit cards may look alike, they are very different financial tools,” said Laura Adams, MBA, personal finance expert at Finder.com. “A credit card lets you make purchases with borrowed money that you have to repay with interest over time. A debit card allows you to make purchases using your money in a linked bank account.

Responsible credit card use can earn you points, miles, cash back and other valuable rewards. They also help you build your credit and impress future lenders, which makes credit cards the right choice in many cases. Many, but not all. According to experts, the following scenarios specifically call for one or the other.

Credit card: for small recurring expenses

If you have a few cards that you no longer use, but don’t want to lose the open credit they provide, you can keep them in good standing by using them to pay for small recurring expenses, like streaming subscriptions.

“These services don’t charge much and ensure your credit stays open and active, which can help boost your credit score, provided you make timely payments,” said Tom Koesternen, Chartered Financial Analyst (CFA ) and consultant for secured loans.

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Debit card: for purchases that offer cashback

Some merchants will reimburse you for allowing them to avoid the fees associated with processing a credit card transaction.

“Sometimes paying with a debit card or cash can get you a discounted price,” said Freddie Huynh, vice president of data optimization at Debt Relief Freedom. “This is seen more often in the case of expensive items.”

It’s not just the expensive stuff. Some everyday purchases, like filling up at a gas station, also offer cash back rewards that you can earn with a debit card. In other cases, stores will reward you for previous credit cards. Target, for example, gives a 5% discount for linking your checking account to its RedCard debit card.

Credit card: to finance large purchases

It’s never a good idea to use a credit card to make purchases you can’t afford, but if you need to stretch an item that’s expensive in payments, strategic use of plastic can get you there. to help.

“If you need to finance a large purchase that needs time to pay off, a credit card is a good option,” said Lauren Davis, founder of the Project Moolah.

But don’t just throw this grand piano on a map with a 24% APR. Davis advises this strategy only with cards that offer a 0% interest introductory period so you can finance the purchase for free.

Debit Card: When You’re Trying to Control Yourself

If credit cards have enabled irresponsible spending, there’s nothing like seeing your bank balance shrink with every purchase to keep you in check.

“Because debit cards are directly linked to your checking account, it’s harder to overspend and get into debt,” said Lucas Solomon, personal and business finance consultant and founder of FX4Biz. “If you’re trying to avoid using credit cards or getting into debt, using a debit card can help you stay on track.”

Credit card: whenever a deposit is required

Some transactions require an initial deposit if the final invoice is uncertain at the time of purchase. In some cases, such as renting a car or a hotel room, a credit card is required. But even if the merchant accepts a debit card, credit is usually a safer alternative.

“When you need to pay a deposit for goods or services, such as equipment rentals or travel reservations, using a credit card allows you to dispute a charge and get your money back if necessary” , Adams said.

Debit card: to withdraw money

When you use your credit card for an ATM cash advance instead of your debit card, you’re not withdrawing money, you’re funding a very expensive short-term loan. Not only do cash advances typically come with higher APRs, they are not considered introductory APR purchases and may trigger interest to start accruing on balance transfers.

Cash advances should only be a last resort for the worst emergencies.

“If you use your credit card to withdraw money, not only are the fees charged high, but it’s also not a good decision from a credit score perspective,” said Damian Serwin, budgeting expert and co-founder of Why budget. “Lenders are looking at this because you’re not able to budget your money the right way.”

Credit card: online purchases

There are very few situations where it makes sense to use a debit card for e-commerce. In the case of online fraud – which is a very real risk – it is much easier to get a credit card company to reverse a purchase than to get a bank to refund the money. Fly.

“Having your debit card information on the internet is risky, which makes credit cards a better option when shopping online,” Koesternen said. “While debit cards are chip-enabled and help deter fraud in person, the chip is not very effective at protecting you online. So avoid saving your debit card information online or choose as your preferred payment method.

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This article originally appeared on GOBankingRates.com: Experts: When to use a credit or debit card