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When to Use a Credit Card Instead of a Debit Card

Credit cards are like self-tanning lotion: When used sparingly and at the right time, self-tanning lotion can give you a delightful boost that makes you feel fantastic. But apply too much, too often, and you’ll wind up like a Cheeto — bright orange and flaking apart.

There was a time in my life when I lived and died by my credit card. I had just moved to Los Angeles and, unlike the Pittsburgh area, where I’m from, you could use your credit card at the gas pump and even on the phone when you ordered takeout (yes, I’m old, I think I’ve mentioned that before). Using my credit card for everything was fine while I was making enough money to pay it off every month. But then, I moved back home (L.A. was not for moi) and kept using my card, even when I didn’t have the money to pay it off every month.

I eventually got a great job that paid very well, but the damage had already been done. I had used my credit card as a life raft while I was moving and looking for a job. Thanks to the high interest rates of credit cards, my debt got so high I ended up using what little I had saved in my 401K to pay it off. Lesson learned! Don’t let your debt get ahead of you! (I’ve got a collection of helpful links at the bottom of this blog post if you need help paying off your credit card debt.)

Credit cards can be very dangerous. Just like me, countless people use credit cards each month to their peril, often ending up in bankruptcy because they cannot afford to pay their consumer credit.

But! When you use your credit card strategically and wisely, you can end up with saving money or reaping a reward. Let’s take a look at when to use (and when not to use) your credit card.

This is the tenth blog post in a 25-day series I’m doing called “Mrs. Weasley’s Shopping Tips and Tricks for Saving $$$.” Click this button to sign up if you haven’t yet! Then you’ll get emails right to your inbox letting you know what that day’s blog post is about. If you missed any days, don’t worry. You’ll get a .PDF with links to every blog post covered in the emails at the end of the series.

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Disclaimer: This blog post contains affiliate links. If you make a purchase using an affiliate link, I earn a small commission, at no extra cost to you. Thanks for your support!

(Psst! Before you keep reading, do you know the interest rate on your credit card? It’s easy to put on blinders so you don’t have to deal with your debt, but you really should know how much extra you’re paying in interest. It will help keep you from overspending, when you realize where you’re money is going.)

In every reason I list for using your credit card, the key is to pay off the balance before interest is added, which is usually at the end of the month.

When to Use a Credit Card

You Get a Bonus

Quilt square of Mrs. Weasley Some credit cards offer you immediate cash on your account the moment you open an account. Usually, you have to spend it within a certain amount of time. You can use that extra cash to pay for something you’ve been saving for, or to buy something that never goes on sale. (It’s like making your own discount.) If you pay the bill off before it adds interest (which is simple to do now that you can pay online), then it’s a great deal; it’s like getting free money.

You Get Cash Back

Here’s another way to get free money: Use a credit card that gives you cash back. If you’re going to get cash back for your purchases, and you’re going to pay off the balance before any interest is added, you’ve just been handed free cash. Here’s another trick. Some people use their cash-back credit card for all their purchases (even monthly bills, like rent and utilities). Then they collect even more free money because they pay their balance every month.

You Get Points

Some cards offer points which can be used to buy specific things, like airfare, hotel rooms or gas. If there’s something you want to save up for, there’s probably a credit card that offers points toward it. For instance, I have a lovely friend who goes to Disney World twice a year, every year. (Yeah, you heard me.) She uses her Disney Visa to pay for everything. Then, she uses those Disney points to make her trips to Orlando much cheaper.

You could also find a card that offers points for things you already buy, like gasoline. That way you end up saving money every month because you’re paying a little less for gas. Again, you have to pay the balance before you accrue interest to actually save money.

You Get Investment Rewards

Some credit cards will put money into a savings for you. You make a purchase and it rounds up the purchase, putting the difference into savings. Then the credit card company matches your savings (usually up to a certain amount) practically doubling your investment. That’s like giving yourself a raise!

You can also use an app called Acorns to do the same thing, without worrying about paying off a credit card balance every month. Once you load Acorns on your smartphone, it will round up purchases and put that difference into a savings account for you. It’s a painless way to start building a savings! Download Acorns for iPhone or download Acorns for Android.

You Get Frequent Flyer Miles

There are a ton of credit cards who offer frequent flyer miles. If you travel a lot by plane, having a card that offers frequent flyer miles is a great investment. Again, you want to pay the card off each month or at least during the grace period before any interest is added. Flyer miles are just like money (that can only be spent on a specific airline). You can often use them for an entire ticket or to upgrade your normal ticket to first class for free.

When It’s Safer

There are many times when using a credit card is actually safer than using a debit card (which doesn’t accrue interest). For instance, when you get gas, using your debit card for at the pump can be a problem because scammers who install their own device and wind up with your information. You can’t ask the bank to get your money back, but if you use a credit card, they can take it off your balance and begin their own litigation.

Also, some banks charge a high fee when you use your debit card at the register. That’s another time it’s better to use a credit card.

The Penny Hoarder has a great article about 6 times NOT to use your debit card.

When You’re Offered a Large Grace Period

Some credit cards have various grace periods such as three months, six months and even 12 months, depending on the size of the purchase. Use that grace period to your advantage! You can pay your balance in monthly installments as if it’s cash, without any interest. It’s like getting a short-term, no interest loan. Of course, it needs to be paid by the end of the grace period to reap the most savings.

Credit cards and woman carrying handbag

When Your Card Offers Additional Insurance for Your Purchase

When you buy high-priced items, like large appliances or computers, compare the discount you get for paying cash to the extra benefit of having your item insured. It’s often easier to return an item bought with a credit card than with cash for this reason. Most stores have an easy system for pulling up information from a credit card, and they can easily refund the credit card.

When It’s Your Only Choice

There are some cases where you really need a credit card over a debit card. Some hotels, airlines and rental car places don’t like using cash or debit cards, so you’ll need a credit card to make your purchase.

When You’re Building Credit

While it may seem counter-intuitive, you have to use credit to build up good credit. If you do use a credit card to build credit, take at least six months to pay it off. The rule of thumb is to try not to use more than 20% of all the open credit to keep your credit rating high. In easy-to-understand terms, that means if you have a credit line of $100, you should only have a balance of $20 at any given time.

Using a credit card can be a sound financial decision if you’re prepared to pay it off fast, and you’re sure that you’ll use the points, cash back or other rewards before they expire.

Helpful Links

If you’re confused about credit cards or need help in any way, here are some helpful links.

Credit Card Interest Calculator – Figure out how much you’re really paying for that new dress when you leave a balance on your credit card.

Considering a Costly Credit Card Cash Advance? Try These 5 Tricks First – Your credit card company will charge you a big fee on cash advances. Try this methods instead.

This Couple Just Paid Off $2,000 in Credit Card Debt in a Clever Way – If you’re paying a high interest rate on your credit card debt, a balance transfer to a zero-interest credit card could help you get out of debt faster.

This is the Worst Debt You Can Have. Pay It Off With These 11 Strategies – Are you tired of those high-interest credit card balances? Here’s to pay off credit card debt as quickly as possible.

4 Trusty Ways to Pay off Credit Card Debt in a Hurry and Avoid Interest – Wondering how to pay off credit card debt? You’re not alone. These five tried-and-true techniques can help you start making a dent in it right now.

What kind of points do you earn with your credit card? Tell us in the comments!


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