In light of the recent large scale credit and debit account theft scheme (read more on that), it’s definitely worth asking the question – which is best, credit or debit?
Quick answer – credit is best. Stick with only using your debit card for ATM withdrawals.
Why? Federal law states that credit users will not be liable for any fraudulent charges over $50. While the limit for debit users is 10 times that amount, or $500. Your results may vary based on your financial institution, many credit card issuers have zero liability policy.
Credit VS Debit
Credit card accounts have better fraud protection. Accounts with some of the best fraud protection will actually catch possible fraud before you do, and avoid the problem altogether. Debit card accounts normally don’t have this sort of protection.
Recovering the cost of the fraudulent charges will be easier for credit card users than for debit users.
Some credit card accounts provide cash back, or rewards for every purchase you make. My credit card gives me points for every retail purchase I make, I can then buy things with those points, including various gift cards or specific items (I usually go for the gift cards). I have yet to see a debit card account offer to give rewards for spending your own money.
Cash or free loan?
Using debit cards requires that you have the cash immediately available, and immediately withdrawn from your account. Credit cards on the other hand are similar to borrowing the money at no interest, and paying it back in a month. You don’t need that money available in your account at the time of your purchase.
This can actually be very beneficial to you. Instead of paying for that new LCD flat screen TV with your debit card, you can use your credit card instead, and keep that money in an interest bearing account until it comes time to pay your credit card bill. It’s like borrowing money for free for a month, as long as you are sure to pay your balance in full.
Use, don’t abuse
As always, you need to use your credit cards wisely. Try not to overspend, or buy more things than you can afford just because you don’t have to pay it back right away. Pay your balance in full each month. Be sure to pay your bill on time, credit card companies have no problem slapping you with a $39 fee for late payments, even if you are just a day late.
Used wisely, credit cards can be a great asset, and provide more fraud safety than debit cards. Abused, credit cards can be a financial nightmare if you build up a large balance, and are not able to pay it off on time. Believe me, I’ve been there and back, it’s not fun.