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Swiping a piece of plastic to pay for things is second nature for most of us these days. But which piece of plastic should you be using — debit or credit?
Experts agree that relying on credit cards instead of debit cards or cash can benefit your finances in multiple ways. Here’s why you should put away your debit card and pull out a rewards credit card for most purchases.
You can earn rewards on your spending
The main reason to use a credit card over any other payment method is to earn rewards and maximize savings. Most credit cards offer rewards, such as points, miles, or cash back for every dollar you spend.
The best cash back cards offer 2% or more on everyday purchases like groceries and gas. The best travel credit cards offer 2X-5X points on flights and hotel bookings.
These cards give you free money for buying things you’d purchase anyway. Meanwhile, debit cards offer little to no rewards.
“The reality is, you are going to spend money even if you are not a big shopper,” says Ron Tallou, owner of Tallou Financial Services. “If you still purchase everyday essentials like groceries, cleaning products, or gas, you can reap the rewards, unlike when you use cash or a debit card.”
Using a cash back credit card by paying off your balance each month allows you to accumulate this “free money” in the form of rewards. You can redeem rewards for statement credits, gift cards, free travel, bookings, and more. Over time, regular credit card users can earn hundreds or even thousands in valuable rewards annually.
Examples of solid reward cards include:
- The Wells Fargo Active Cash® Card is a cash back card that earns 2% cash rewards on every purchase
- The Capital One Venture Rewards Credit Card earns 5X miles per dollar on hotels and rental cars booked through Capital One Travel and 2X miles per dollar on all other purchases
Credit cards also include other money-saving perks you can’t find with a debit card. Examples include:
- Complimentary hotel room upgrades
- Dining or entertainment credits
- Discounts on ride shares
- No foreign transaction fees
- 0% APR financing on large purchases
- Early access to concerts or sports events
You can collect a welcome bonus
Many cards offer a sign-up bonus to new cardholders who meet a minimum spending requirement within a few months of opening the account. These bonuses often equal hundreds or thousands of cash, points, or miles.
These easy windfalls require just a few months of everyday purchases you’d make anyway to achieve bonus requirements. The extra rewards earned can be used to offset travel, groceries, statement credits, gift cards, and more.
Examples of cards with welcome bonuses include:
- With the Chase Sapphire Preferred card, you’ll earn 60,000 bonus points if you charge at least $4,000 on purchases within the first three months of opening your account.
- With the Chase Freedom Flex®, you’ll earn a $200 cash back bonus if you spend $500 on purchases in the first three months of opening your account.
You can get fraud protection
Another benefit of relying on credit over debit is the superior fraud protection and liability limits in case your card gets lost or stolen. Federal law caps consumer liability for fraudulent credit card charges at $50 per card. Most credit card providers even waive this fee.
Meanwhile, a stolen debit card drained of cash can be far more problematic. Checking accounts are directly linked to your funds. Although missing money can be refunded, the hassle and temporary loss of access to money can be considerable.
You can build credit
Paying your credit card bill on time monthly can help improve your credit score. Each on-time payment is reported to the national credit bureaus, which can steadily raise your score. This is especially advantageous for younger consumers or those building credit for the first time.
“Many younger borrowers may not have established credit yet, and using a credit card may demonstrate your financial responsibility by paying off your balance and repeating the process systematically,” says Steven Conners, president of Conners Wealth Management.
Having excellent credit unlocks better terms for loans and other needs in the future. Those with higher scores qualify for the best borrowing rates, which saves you money on interest over time.
Conversely, debit card spending doesn’t help credit since it isn’t a form of borrowing reported to bureaus. Those aiming to improve credit should minimize debit transactions.
How to manage your credit card responsibly
Some key strategies for managing credit responsibly include:
- Pay your statement balance in full each month. Credit cards come with high interest rates. If you carry a balance past the due date, these high rates could make your debt grow faster than you can pay it off. That’s why paying your credit card balance in full each month is so important.
- Set payment due date reminders. This can help you avoid paying late. Late payments get reported to the national credit bureaus, causing your credit score to drop.
- Track expenses closely. Only make purchases that you know you can pay off. This will help you avoid overspending and accumulating debt.
Of course, credit cards do come with risks if used recklessly. Carrying balances month-to-month leads to fast-accumulating interest charges. Missed payments also trigger penalties — plus damage to your credit score.
If you’re prone to overspending, using a debit card or cash may make more sense. But, for most, credit cards are the best way to pay.
The bottom line
In the battle between debit cards versus credit cards, credit comes out as the winner for everyday purchases. The many perks and protections of credit are hard to beat. Just be sure to always pay on time and in full.
So next time you grab your wallet at checkout, reach for that rewarding credit card and make your money work harder.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.