Debit Card or Credit Card?

credit card or debit card, credit union los angeles, financial advice los angelesWhich is better to use – a credit card or a debit card?  They both can be accepted at most places and they both seem to work just as well in any situation you come across.  There are obvious differences, like one is spending money on credit while the other is spending money you already have.  That aside – which is better for you to use?  Let’s look at a few key ways they differ.


When you spend money using a credit card, the limit to what you can spend, is determined by the amount of credit you have available.  This can make it very easy to overspend and is one of the reasons people get into trouble with debt.  With a debit card, you are limited to the amount of money you have in your bank account.  Because of this, you are less likely to overspend because you know you have to keep money in there to do things like pay your rent or mortgage.


Most debit cards offer fraud protection, but it can often take time to get the money back into your bank account. Once fraud has happened and the money is out of your account, you have already put your money at risk.  Credit cards, on the other hand, allow you to dispute transactions without having to worry about your cash flow in the mean time.  Since you are spending money on credit, if your card gets stolen, it’s not your money that has been compromised.


Credit cards often have some kind of rewards program, giving you cash back or points that can be redeemed for goods and services.  The benefits here are obvious.  If you have a card that gives you 2% cash back, then everything you purchase with that card is essentially 2% off.  This can add up if you use your card to purchase larger items.  Debit cards don’t typically offer any rewards programs.


Although you might think that you won’t overspend if you use a credit card, it’s easy to spend extra money when you don’t have to think about paying for it until a later date.  Many people also believe that they will make more money in the future than they do now.  While this might come true eventually, spending money based on future earnings is a dangerous way to manage your money, one that is often a losing battle.

While you need to determine for yourself what you would prefer to use, we’ll leave you with this small piece of advice: pay off your credit card each month.  The first month you can’t pay it off in full, stop using it until you have paid it off.  This will help you minimize your debt and keep your spending in check.

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