When To Use Credit Cards

Over the past few years, the number of debit card transactions have risen, while credit card transactions are declining. This isn’t shocking in the new economy where consumers are more aware of the dangers of carrying high credit card balances. In fact, using a debit card seems almost identical to using a credit card, minus the obvious difference in the source of money. There are however, different levels of protection offered by credit cards that debit cards lack. Understanding this can help you avoid problems with debit card purchases. Here are a few situations where it is better to use a credit card versus your debit card.

• When a deposit is required- There are many instances when you may have to place a deposit before renting or using various merchandise. When you use a debit card to place a deposit, you are basically allowing the merchant to hold onto money in your bank account which could result in problems should you need access to that money before the deposit hold is lifted. By using a credit card to make the deposit, you still have access to your cash should you need it.

• Dining out- For years we have heard the following advice, “never allow your card out of your sight”. How often do you follow the wait staff when you present a debit or credit card to pay your restaurant bill? Most people will answer- never. Credit card theft and identity theft are a real problem for consumers, and many instances occur when your card is used at a restaurant. Credit cards offer more protection, mitigating the risk should someone copy your account information. Many restaurants also place an additional hold on your account, for the purpose of tipping. If you leave a cash tip, you might find more of your money is “held” until the transaction is processed.

• Online purchases- Making a purchase without receiving the merchandise immediately puts you at some risk. There could be errors with the order, shipping problems or any number of scenarios which could potentially result in you having paid money out of your bank account for a product you are unable to use. Again, credit cards offer a higher level of protection than debit cards, making them the preferred choice.

• Travel reservations- Unless you are checking into the hotel at the moment, most travel reservations are made in advance. Using a debit card means any holds could take place at the time the reservation is made, making that money unaccessible in the interim. Some travel reservations such as car rentals require a credit card.

• Monthly payments- If you want to set recurring payments up to be paid automatically, consider using a credit card versus debit. If you ever have an issue canceling a membership or halting automatic payments your money is safe in the bank until the problem is resolved.

Remember, credit cards on their own are not necessarily evil. When managed responsibly, you can use your credit card without going deep in debt. The situations noted here are prime examples of the benefits of using credit wisely. It basically comes down to the level of protection offered by credit cards that is currently lacking in debit card use.