Imagine you’re standing in the grocery store checkout line and you don’t have enough cash to pay for all your items. You decide to take out a card but hesitate. Which card do you use to pay?
Many people do not consider the pros and cons of using debit vs credit cards when making a purchase. To know which is best to use in a given situation, you must first understand the differences between debit and credit.
Debit vs Credit: What You Need to Know
The way credit cards work is pretty simple: the cardholder purchases an item, which is paid for by the bank. The cardholder then pays the bank either in full or in installments during each monthly billing cycle for the total amount charged on the credit card.
Most credit cards have varying interest fees and occasionally a membership fee as well. Paying for something on a credit card is like taking out a loan — the bank gives you enough money to pay for it, and you agree to pay the bank back for the entire amount.
If you pay off your entire credit card statement each month, then you won’t have to worry about paying interest as well. But if you only pay the minimum amount required each month, you will end up paying interest on your purchases down the road.
To avoid accruing credit card debt down the road, be sure to budget out regular credit card payment to help you pay your purchases.
Debit cards, on the other hand, do not work like loans. Instead, they work like traditional paper checks. There must be enough money in your checking account, which is connected to your debit card, to cover the cost of the purchase. Otherwise, the payment cannot be processed.
If you don’t have enough money in your checking account to cover your purchase, you run the risk of racking up overdraft fees.
Debit cards nearly always utilize a Personal Identification Number, or PIN. Your PIN is usually four-digit code and acts like a personal signature. Once you enter your PIN you can pay for your goods and complete your transaction.
Your PIN also lets you withdraw money from ATMs or other places that allow cash withdrawals, like checkout counters at grocery stores.
Debit cards are automatically issued by your bank, so long as you open a checking account with them. Be sure to read the fine print and become familiar with any hidden bank fees attached to your debit card or checking accounts.
Credit or Debit? When to Use Your Cards
No one likes carrying around debt. However, it’s important to accumulate some debt by making purchases on your credit card in order to establish a payment history and credit score.
But that doesn’t mean you should use your credit card for everything. In fact, many items should explicitly not be put on credit. Even if your credit card company has great travel rewards or cash back perks, you should use your credit card wisely.
Here are a few tips to keep in mind when weighing the pros and cons of debit vs credit.
DO use your credit card…
- If you’re purchasing airline, bus, or train tickets, or booking a hotel room
- If you’re putting a down payment on a rental item, like a party venue or car
- If you’re paying for large expenses or a big-ticket item like a sofa or television
- If it’s an emergency, like being stranded in the middle of nowhere
Ultimately, it’s best to use your credit card for travel purposes, large purchases, or emergencies. You’ll have more breathing room for paying off these expenses and can budget accordingly.
If you’re traveling overseas, be sure to look up transaction fees from your lender. Or consider getting traveler’s checks for your trip to avoid paying such fees.
DO NOT use your credit card…
- If you’re purchasing a small one-off item like a cup of coffee
- If you have no cash to cover credit card payments later on
- For daily or weekly purchases like groceries or gas
A good spending habit to maintain is using your debit card when it comes to small purchases or regular expenses. This will help you budget better and figure out how much cash you should always have available in the long run.
Before making any type of purchase, ask yourself “will I have enough money to cover this?” This will help choose between debit vs credit for any given purchase. Whatever you put on your credit card will have to be paid back sooner or later. And anything paid for with a debit card you must be able to cover with the money you currently have in your checking account.
By keeping these tips in mind, you’ll always know which piece of plastic to take out in a given situation. And you’ll never hesitate when someone asks you “credit or debit?” at the checkout counter again.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|