Pick Your Plastic: Debit or Credit?

According to a Federal Reserve study, Americans use debit cards more often than credit cards, but the total value and the average value of credit card transactions are higher than those of debit card transactions (see chart).

This reflects fundamental differences. A debit card acts like a plastic check and draws directly from your checking account, whereas a credit card transaction is a loan that remains interest-free only if you pay your monthly bill on time. For this reason, people may use a debit card for regular expenses and a credit card for "extras." However, when deciding which card to use, you should be aware of other differences.

IMAGE

Fraud protection. In general, you are liable for no more than $50 in fraudulent credit card charges. For debit cards, a $50 limit applies only if a lost card or PIN is reported within 48 hours. The limit is $500 if reported within 60 days, with unlimited liability after that. A credit card may be safer in higher-risk situations, such as when shopping online, when the card will leave your sight (as in a restaurant), or when you are concerned about a card reader. If you regularly use a debit card in these situations, you may want to maintain a lower checking balance and keep most of your funds in savings.

Merchant disputes. You can dispute a credit card charge before paying your bill and shouldn't have to pay it while the charge is under dispute. Disputing a debit card charge can be more difficult when the charge has been deducted from your account, and it may take some time before the funds are returned.

Rewards and extra benefits. Debit cards offer little or no additional benefits, while some credit cards offer cash-back rewards, and major cards typically include extra benefits such as travel insurance, extended warranties, and secondary collision and theft coverage for rental cars (up to policy limits). Of course, if you do not pay your credit card bill in full each month, the interest you pay can outweigh any financial rewards.

Credit history. Using a credit card can affect your credit score positively or negatively depending on how you use it. A debit card has no effect on your credit.

Considering the additional protections and benefits, a credit card may be a better choice in some situations — but only if you pay your monthly bill on time.

 
Twin Cities Retirement Income Planning | Financial Planning Associates
5201 Duncraig Road
Edina, MN 55436
Phone: 952-929-2577 Fax: 952-928-3799

Securities and advisory services offered through Cetera Advisors LLC, member FINRA, SIPC. Cetera is under separate ownership from any other named entity.

1200 S Washington Ave  Suite 270 Minneapolis MN 55415

We are licensed to sell Insurance Products in the following states:  Minnesota, Indiana

We are registered to sell Securities in the following states: California, Minnesota, Iowa, Indiana

 

Financial Planning Associates and Venture  Development Inc. and RE/MAX Results are not affiliated with Cetera Advisors LLC.

This site is published for residents of the United States only. Registered Representatives of Cetera Advisors LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisors LLC site at www.ceteraadvisors.com

The registered representative(s) and/or investment adviser representative(s) listed on this website are licensed and registered in the following states:

We are licensed to sell Insurance Products in IN,MN.

[ Online Privacy Policy | Important Disclosures | Business Continuity | Privacy Promise | Order Routing Disclosure | Cetera Advisors ]