Should I use Debit or Credit?

There are good reasons why many consumers are making the switch from cash to debit cards and credit cards. For one, payment cards are a much safer option than carrying large sums of cash around. They also offer the utmost in convenience and flexibility.

For instance, you can pay for things, rent a car, and reserve a hotel room, just to name a few benefits. And payment cards also allow you to track your purchases online, which can help with budgeting.

But how do you know when to use your debit card and when to use your credit card?

When debit is in demand

The best part about debit cards (also called ATM cards) is that you're spending money you actually have. Say, for example, you've had your eye on a new pair of jeans. Rather than charge your purchase to your credit card and face a future bill, you can have the money debited immediately from your bank account. Cash also has the same benefit, but it means having to find a branch or ATM to withdraw the money from and carry your money around.

Debit cards are also a good fit if you're carrying debt. That's because ATM cards limit your purchases to what you can afford at this very moment, preventing you from spending beyond your means.

When credit makes sense

Convenient, easy to use and widely accepted, credit cards pack a whole lot of purchasing power into a paper-thin slice of plastic. No wonder so many of us reach for our credit cards when purchasing items ranging from clothing to cars. And, unlike debit cards that often carry a maximum daily spending limit, credit cards are perfect for purchasing larger items.

Many credit cards also offer rewards such as airline miles or cash back in exchange for choosing credit. And then there's the matter of consumer protection. Make a purchase with a debit card and, chances are, you're stuck with what you've bought. However, with a credit card, you often have the option of withholding payment if a purchase doesn't meet your satisfaction. Even better, many credit cards limit your liability for fraudulent use if your credit card is lost or stolen.

The trick to making the most of a credit card is finding one that fits your lifestyle. For example, if you're paying an annual fee for a card that offers travel miles and you're not a world traveller, it may be a good idea to switch to a lower fee card.

So the next time a cashier asks you, 'Will that be debit, credit or cash,' don't just reach for whatever is in your pocket. Instead, take a moment to consider your best option.

Make sure you are using your cards properly and responsibly so you get all the benefits. Read Smart Use of Credit to learn more.