Southland News

Debit or credit: Which should you use?

Chances are that you have both a debit and credit card in your wallet right now. While they are both used to purchase both large and small items, they do have one key difference. Debit cards use the money you have saved in your checking account while credit cards borrow funds from a lender to purchase items. You may be wondering when you should use your debit card versus your credit card. Southland has some answers for you! 

What is a debit card?

Debit cards are payment cards that make payments by deducting money directly from a consumer’s checking account. Debit cards offer the convenience of credit cards and most of the same consumer protections when issued by major payment processors like Visa or MasterCard. 

Benefits of using debit cards

There may be a variety of benefits for using your debit card rather than your credit card for both everyday and large purchases. 

First off, debit cards generally have few or no fees. Unlike most credit cards, debit cards don’t include an annual fee or late-payment fees. With a debit card, the only likely fee that a user will run into is an overdraft fee which is caused by spending more than you have in your checking account. 

Since a debit card draws on money that the user already has, it eliminates the danger of racking up debt. By using debit cards, impulsive spenders can avoid the temptation that credit cards offer and stick to their budget. They can help users stay out of high-interest debt. 

In addition, many debit card issuers are now offering great fraud protection plans. Many banks and credit unions offer some form of automated fraud prevention. If you suspect a fraudulent charge on your card, notify the your financial provider quickly. If you wait too long to let your bank know that your card was used for unauthorized purchases, you may be held responsible for your losses. 

What is a credit card?

A credit card is a card issued by a lender, typically a bank, credit union, or other financial institution that enables the cardholder to borrow funds from the institution. Cardholders agree to pay the money back, with interest, according to the lender’s terms and conditions. 

Benefits of using a credit card

When used responsibly, credit cards can build your credit report. If you pay your credit card bill in full each month, keep your card balance relatively low compared to your limit, and make your payments on time, using a credit card can help increase your credit score. 

In addition, many credit cards offer rewards for usage. Although some rewards promotions may ask you to spend a certain amount to receive points or cash back, card holders may benefit from travel miles, cash and rewards items. It’s important to make sure that you will be able to pay back what you spend when trying to earn your points, but when used responsibly, travel and hotel stays, cash back and other rewards items can offer great benefits for credit card users. 

Some credit cards may also offer additional warranties and insurance for items paid for on that card. If an item bought with a credit card becomes defective after its manufacturer’s warranty has expired, the credit card company may actually offer additional coverage. Credit cards also typically offer much greater fraud protection than debit cards. Southland's Visa cards feature the Zero Liability Policy, which means the user is not responsible for fraudulent purchases or theft. 

When items are bought with a debit card and disputed, many charges cannot be reversed unless the merchant is willing to do so. And, debit card theft victims often do not get their refund until an investigation has been completed.

Both credit cards and debit cards can be beneficial for card users. A rule of thumb, if you are trying to manage your debt, stick to using your debit card. But if you know that you can pay your credit card bill on time and in full, consider using your credit card for large or small purchases and earn some rewards points. 

Southland Credit Union offers Enjoy! Rewards Checking with a debit card, and credit cards with low rates, no annual fees, and rewards options.