When To Pay With a Credit Card Over Debit

by Barry Choi September 7, 2017 / No Comments

When it comes to payments, consumers have more choice than ever. Credit cards and mobile wallets are convenient and quick, while cash or debit are still the preferred methods of payment for many merchants. But is one better than the other? It depends.

There’s no denying the best credit cards offer a ton of benefits such as travel points, cash back, insurance, and additional perks, but do those matter if you’re carrying a balance? On the other hand, cash is something you physically have, so that means you won’t be tempted to overspend. Both forms of payment are handy, but there are times when you should pay with a credit card over debit (and vice versa).

When to pay with a credit card over debit

If you’re shopping online. When it comes to online shopping, credit is the most widely accepted form of payment. Some merchants do accept PayPal or Visa Debit, but using a credit card is simply the most reliable form of payment when making online purchases. As an added bonus, you’ll likely get purchase protection, zero liability, and extended warranty. You can also dispute charges when using your credit card.

If you’re making a large purchase. Carrying a stack of bills around may make you feel rich, but it’s not that practical when you’re looking to make a large purchase. If you plan to buy something that costs more than a couple hundred dollars, it’s easier to charge it your credit card.

If you’re booking a trip/travelling. Credit cards should always be used when it comes to all things travel. If you have one of the best travel credit cards in Canada, you’ll likely get included comprehensive travel insurance when you charge your travel purchases to your credit card. While abroad, using a credit card with no foreign exchange fees will help you save a bit of money since you won’t have to pay the 2.5% foreign transaction fee.

If you want to build credit. If you want to build up your credit score, then using a credit card is the best way to do it. TransUnion and Equifax are Canada’s two credit bureaus, and both rely on data from your credit card spending (among other factors) to determine your credit score. As long as you’re making purchases on your card and paying your bills on time, you’ll be in good standing the next time you check your free credit score. Even if you currently have bad credit, you can use a secured credit card to help you rebuild it.

When to use debit over credit 

If the other party needs to be paid immediately. Credit cards are incredibly handy for those who are using them, but the receiver of the funds may require payment immediately which is when cash makes more sense. Keep in mind that you don’t need to carry a ton of cash around, you could send an e-transfer since it’s an almost instant way to send cash.

If you’re saddled with debt and recovering from money mismanagement. Although credit cards are convenient, they can wreck our finances if we overextend ourselves. If you currently have debt or have problems managing your budget, using cash is the best option until you get your financial situation under control. By using cash, you’re only using the funds you currently have which will prevent you from going further into debt.

If you’re travelling. Okay, I know I just said that using credit is better when travelling, but many places around the world still deal with cash only. Cash is a must when you’re trying to negotiate at local markets or grabbing some street food. When you use foreign ATMs, you’ll pay the spot rate, plus a 2.5% currency exchange fee, but that’s often still cheaper than what you would get from the bank back at home.

Deciding when to pay with a credit card over debit really is a personal choice. There’s no right or wrong method, but as you’ve read, at times it makes sense to pick one over the other.

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