6 Times You Should Use a Credit Card Instead of a Debit Card

In the wake of the Great Recession, debit cards became increasingly popular among many who wanted to avoid the possibility of incurring debt. In fact, debit cards have several important qualities that credit cards lack, and there are times that even the biggest credit card fans should use their debit cards. Likewise, there are also some instances that debit card users should consider breaking out their credit cards.

Here are six times that you are better off using a credit card instead of a debit card.

1. Renting a Car

One of the most valuable perks offered by most credit cards is rental car insurance. These policies cover renters in most situations, and typically have a reasonable $500 deductible. On the other hand, there are no debit cards offered with rental car insurance policies. Furthermore, those trying to rent a car with a debit card need to purchase their own insurance, and submit a large deposit in the form of a hold on their account.

2. Staying in a Hotel

Like rental car companies, hotels will require debit card users to submit a deposit in order to rent a room. In this case, the deposit is required to cover any damage to the room, as well as any incidental purchases such as room service. But when using a credit card, there is merely a temporary authorization placed on the cardholders account. While this temporary authorization will use up some of the cardholder’s credit limit, it is far less of an issue than with a debit card, which freezes a cardholder’s available bank funds.

3. When Paying Your Balance in Full

When people give up on credit cards and switch to debit cards, they are giving up the possibility of earning rewards in exchange for eliminating the chance of incurring debt. Yet when credit card holders pay their balance in full each month, they never have to pay interest or get into debt. Rewards credit cards that offer valuable points, miles and cash back can be seen as a significant discount on a purchase. For example, some credit cards offer as much as 5% or 6% cash back at select categories of merchants. In addition, these cardholders receive a free loan for as long as 55 days.

4. Ordering Something to Be Delivered in the Future

When you order goods over the phone or the Internet, or you pay for services that have not been delivered, the method of payment you use makes a big difference if you never receive what you paid for. Debit card users have no recourse with their card issuers when they legitimately authorize a charge for goods and services that are never received. Instead, they must pursue a refund directly with the merchant or take them to court. But with credit card charges, the cardholder has the ability to request a chargeback when the goods or services ordered are not delivered as promised. When a chargeback is requested, card issuers immediately issue a temporary credit, which is made permanent once the cardholder’s claim is documented.

5. When You Need an Extended Warranty

When purchasing consumer electronics, many shoppers are asked to pay extra for an additional extended warranty. Yet most credit cards include extended warranty policies that cover purchases for an additional year beyond the manufacturer’s warranty. You will not find this feature in a debit card.

6. When You’re Traveling

Even travelers who don’t rent a car or stay in a hotel can still find plenty of valuable features in popular credit cards. For example, cards might include trip cancellation and trip interruption policies, which covers basic expenses when travel plans go awry. In addition, many cards offer lost or damaged luggage insurance, which covers losses that airlines do not. And finally, many credit cards offer travel assistance hotlines to help travelers arrange medical or legal assistance, or co-ordinate roadside automobile repairs.

Finally, it bears repeating: When you use a credit card for purchases, it’s ideal to spend no more than you can pay in full each month. If you carry a balance from month to month, it’s important to come up with a plan to pay it down so you don’t spend as much in interest charges over time.  Because those can really add up. You can see how long it will take you to pay off your credit card debt using this free calculator, and you can also see how your credit card use is affecting your credit scores by getting your free scores on Credit.com.

More on Credit Cards:

Image: AdamGregor

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