How to Decide When to Use Debit (Cash) or Credit

In working with clients, I’ve often encountered those who are hesitant to use their credit cards and opt for debit cards most of the time. These days, a great deal of people use debit instead of carrying large amounts of cash around.  And while using debit cards can be a good practice in some cases, there are few key instances when it is typically best to use your credit card.


When It's Better to Use Debit Cards

  • For small purchases under $20

  • When buying something that you know you won’t need to return

  • When paying in person (with a reputable merchant)


When It's Better to Use Credit Cards


Why Credit Cards are Often Better

1)      Purchase Protection Availability

If you make a purchase with a vendor and a problem arises, you typically can reach out to the credit card issuer and they’ll assist you with disputing a charge. While the dispute is being investigated, the purchase is put on hold and the vendor does not receive the funds until the matter is fully resolved. While the charge is being disputed, it should be reported on your credit report as ‘in dispute,’ so it shouldn’t impact your credit score during the dispute period.

It is more difficult to dispute a debit card charge. The bank issuing the debit card may or may not assist with the process. It also tends to take longer to get funds back. Since the money has already gone out of your account, it’s more complicated to get back and less likely that the vendor will return the funds.

2)      Establishes Credit Score

Credit card usage is reported to each of the 3 credit reporting bureaus monthly, which generates a credit score with each bureau.

Regardless of how frequently debit cards are used, they don’t help generate a credit score. Since the money comes directly out of your checking account and isn’t borrowed, debit card usage is not reported to the credit bureaus.  For those looking to build or increase their credit scores, using credit and paying it off monthly on time and in full is the better option.



3)      Improves Cash Flow Management

When you use credit, it doesn’t tie up the cash currently in your pocket. This allows you to buy necessary items throughout the month and pay for them when you actually have the money. You can then pay up your credit card bill in full on your scheduled paydays. Many credit card companies also let you schedule your credit card due dates as well. As a result, you can schedule your credit card bills at times which are more convenient for you.

For example, if you get paid on the 15th and 30th of every month, you may want to move your credit card due dates around to time it with your pay periods. If your rent/mortgage and several large bills fall on the last day of each month, then you can pay for other purchases made with your credit card in the middle of the month.

When you pay with a debit card, the money is usually withdrawn immediately from your bank account, so those funds are not available for other important purchases that you may need in the meantime. Since you can only spend what’s available in your bank account, once it’s empty, your cash flow is restricted until your next pay period.

Of course, for those who have more challenges staying within a budget, paying with debit card may be the more controlled option. However, by learning to spend within a budget, credit cards can prove to be an extremely useful money management tool for these individuals, finally offering more overall benefits than debit cards.

What are your thoughts? Which form of payment have you found to work better for you?

Yolanda Ransom is a Certified Financial Coach & consultant. She coaches clients one-on-one and is a consultant, speaker and workshop trainer on financial literacy.  Visit for more tips or follow at Twitter @yrconsultingllc

*Photos: Pixabay Creative Commons Images