(DailyProsper.com) – When making purchases, your most common payment options are cash, credit, debit or check. How you choose to pay likely depends on several different factors, like how expensive the item is and whether you have cash on hand.
But are there advantages to one method of payment over the others? Are there times when you should be using credit over debit? There’s no cut-and-dry answer, frankly, but we can help you understand the benefits of each option.
Pros and Cons of Credit Cards
Many credit card companies offer programs in which you can earn points to put toward different types of rewards, like airline miles or cashback. If you’re strategic and mindful about how you use your card, these rewards can be a major incentive.
Credit cards also offer more protection against fraud and theft than debit cards. Under the Fair Credit Billing Act, you won’t be held responsible for fraudulent activity, and if your credit card gets stolen and starts racking up unauthorized purchases, the most you may be required to pay is $50.
Perhaps the most obvious advantage of using a credit card is that it builds your credit history, which helps show potential lenders you’re capable of responsibly managing debt. Without a strong credit history, it can be hard to secure a loan, buy a house or even rent an apartment.
Credit cards do come with interest rates, and if you aren’t careful, it can be easy to overspend and trap yourself in a cycle of debt. If you use your credit card regularly, set a limit on how much to put on it and do your best to pay it off in full every month.
Pros and Cons of Debit Cards
Unlike credit cards, which give you a line of credit you can spend, debit cards are linked to your bank account, therefore preventing you from spending money you don’t have. If you find you’re overspending with a credit card, using a debit card may help you stay more accountable.
When it comes to fraudulent activity on your debit card, you’re responsible for reporting unauthorized purchases to your bank within a certain timeframe, and you could be on the hook for anywhere from $50 to $500. You could also be subject to overdraft fees if your spending exceeds your bank account balance. The amount of an overdraft fee varies by bank, but the average is around $35.
The choice to use a debit or a credit card on certain purchases will vary by individual, and there isn’t really a clear answer about which is best in every circumstance. They both come with pros and cons, and when to use one over the other depends on your unique financial situation, goals and spending habits.
~Here’s to Your Success!
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