There’s nothing like a pandemic to make modern consumers question financial habits — particularly spending habits and whether you should use a credit card instead of a debit card to make everyday purchases.
With so much uncertainty around the economy, unemployment and interest rates, consumers are now saving more than ever: a record 33% of their income, according to data from CNBC. For context, that’s nearly triple what Americans saved pre-pandemic.
While consumers are hoarding cash out of fear, they may also opt to use credit instead of debit in order to hold on to more cash in the short-term. For those debating if this is the right move, there are four big benefits credit cards provide that debit cards simply can’t.
The four biggest benefits of using credit
- Building credit
- Extra time to pay back costs
- Fraud protection
- Credit card rewards
Building credit
In order to gain access to credit, you have to use it. And while this may seem unfair, utilizing credit responsibly in the micro sense (credit cards) means a higher score which can then enable a borrower to leverage credit for larger purchases like a house, car, or business loan.
Every month when you use your card and then pay it off on time, you’re improving your credit score in a big way.
Extra time to pay back costs
The biggest advantage of credit is accessing money instantly to pay for needed items while enjoying the ability to pay later. When you use your debit card, the money automatically leaves your checking account; but a credit card allows consumers to pay on their own timeline, provided they make the minimum payments.
It’s worth noting this can be problematic for those who live beyond their means, but having access to credit can be game-changer for those struggling to pay bills.
Credit cards with zero percent interest rate for a promotional period can also be used to finance home and car repairs at zero cost, allow consumers to pay for groceries and gas before payday, and float medical costs in advance of a windfall like a tax return.
Fraud protection
One of the biggest benefits of using credit cards over debit is the built-in fraud protection that comes when using a credit card. If a thief accesses your debit card information and steals money, the money instantly leaves your bank account, and can be difficult to get back.
With a credit card, the companies work on your behalf to combat fraud and cardholders are rarely liable for charges incurred.
Credit card rewards
Fraud protection is a great incentive for using credit cards, but the rewards are what make credit cards incredibly seductive. Why use a debit card that offers zero rewards when you can use a credit card and get 1-3% cashback per transaction alongside other perks all year long?
As an example, say a consumer spends $1,000 on their credit card each month for a total of $12,000 annually. By using a card with a 3% cashback, a person could receive $360 back each year.
Those especially adept at stacking credit card rewards can not only do it while avoiding hefty interest costs, but also by leveraging reward programs to book free flights, hotel stays, and special experiences. The important thing when evaluating card reward programs is to ensure you’re getting a card with zero annual fees, or an annual fee that doesn’t overwhelm the number of rewards earned.
Recap: Why should you choose credit over debit?
Credit cards really only work to your advantage when used responsibly and repaid in a timely manner. If credit card interest begins to rack up on unpaid balances, then the credit card is no longer cost-efficient and costs substantially more than the use of the debit card.
Really, the decision of credit vs. debit comes down to your own personal financial situation. What’s the best financial tool for your family? Can you handle credit responsibly? Are you able to make payments on time and in full?
