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Credit or Debit: How to Decide Which Card to Swipe

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Do you ever wonder if you should you use your credit or debit card? This simple question has some pretty complicated answers that depend on how you deal you with money, the types of purchases you make, and issues of security. Here is what you need to know before you decide which card to swipe.

For Everyday Purchases
The first thing to consider is how disciplined you are about spending. If you have the tendency to think of a credit card as free money, then you’ll probably want to stick with the safety of a debit card. A debit card ensures that you can’t spend more than what you have in the bank, and using one can protect you from going into debt.

On the other hand, everyday purchases can also earn you rewards if you use a credit card. Just be sure that you can pay off whatever your balance is at the end of the month.

For “Blocked” Purchases
When you use your credit or debit card to buy gas, pay for a hotel stay, or rent a car, you are purchasing something with a variable price. The retailer might “block” the estimated cost from your account to make sure you can cover the final charge.

For instance, if you purchase $35 worth of gas, the gas station might block $50 worth until the transaction goes through. In this scenario, it’s not a big deal if you use your debit card because the difference is only $15. It would be more of a problem if you were using your debit card to pay for a $500 hotel stay, as the hotel might block $800 just in case you lengthened your stay (or seriously raided the mini bar). You might find yourself bouncing checks until the transaction clears, which is why it’s a good idea to use your credit card for purchases that have a variable price. The block will be removed before you receive your bill, and you won’t have to wait for the transaction to clear.

For Large Purchases
Credit cards offer certain protections when making bigger purchases. For instance, if you purchase a defective product, you can dispute the charge with your credit card company. If you make the purchase with a debit card, however, the vendor will almost immediately have your payment and you will have to do some legwork to receive your refund.

Security Concerns
Though it looks just like a credit card, carrying a debit card is more like carrying all the cash in your account at once. You need to be as careful with it as you would be with the equivalent amount of cash. Using your debit card and PIN number whenever you make a purchase makes it more likely for someone to steal your numbers.

If a scammer does hack your account, you are not liable for the full amount, although the liability goes up with time. According to the Consumer Action Handbook, if you report the fraud within two days, you are responsible for $50; within 60 days, it rises to $500; after 60 days, there are no limits.

If you’re not sure whether to use your credit or debit card, keep the following in mind: Debit cards offer convenience and built-in discipline, but credit cards offer rewards and increased security, and should be used for “blocked” charges.

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Emily Guy Birken is a former educator and respected personal finance writer. She is the author of the best-seller The Five Years Before You Retire, and the forth-coming book Choose Your Retirement. Her work has appeared on Huffington Post, Yahoo Finance, Business Insider, MSN Money, and Kiplinger's, and Birken has been a guest on Wisconsin Public Radio as well as several podcasts, including Stacking Benjamins and The Doughroller.Birken's background in education allows her to make complex financial topics relatable and easily understood by the layperson. Her mix of no-nonsense advice, humor, and research into the latest studies on finance and behavior make her work a go-to resource for anyone hoping to get a better handle on money matter.