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When I was growing up, I was taught to avoid credit cards completely. My parents told me they were scary things that could quickly get you stuck in a cycle of debt. For years, I only had a debit card and I knew nothing about credit card perks like rewards and fraud protection.
For sure, debit cards can have their advantages. You can't rack up interest charges, the fees are often lower, and it's easier to manage your spending. Indeed, according to research from S&P Global, debit cards are the go-to payment method for about 56% of Americans.
But if you only use a debit card, you're missing out on some valuable credit card perks. And as long as you pay off your credit card balance each month, you won't get slammed with high interest payments.
Ultimately, the trick is to know when to use which card so you can get the best of all worlds. Here are three times to skip using your debit card.
1. When you can earn rewards
Credit card rewards points can be powerful. Some of the best cash back credit cards can earn 5% or more in rewards on certain spending categories. Others might earn 1% or 2% back on all your spending, up to certain limits. If you have more than one credit card, you might be able to maximize your rewards by using different cards for different purchases.
Some credit cards also have sign-up bonuses that reward you for spending a certain amount in a set period of time. If you're aiming to collect a welcome bonus, avoid using your debit card unless there's a really good reason.
Key takeaway: It isn't feasible to use your credit card and earn cash back on all your spending. You'll likely pay for your rent or mortgage, loans, and certain bills directly from your bank account. But if you have a credit card that earns rewards or you're trying to make the minimum spend for a welcome bonus, it could be a good choice for many other payments.
2. When you'd benefit from fraud protection
One of the big differences between credit cards and debit cards is the level of protection you get in the event of fraud or theft. Most credit cards offer zero-liability fraud protection, which means you won't get charged for any fraudulent transactions, period. Legally, the maximum you could be liable for is $50 of unauthorized spending.
If criminals get hold of your debit card details, it's another story. Legally, the amount you're liable for depends on when you report the loss or theft. It's one thing if you catch it quickly. But if you don't notice for over 60 days, you may not have any protection at all -- you'd be on the hook for all the charges.
Plus, your debit card is directly connected to your checking account, so fraudulent debit card transactions will immediately affect your balance. This takes time to resolve. In the meantime, it may leave you without enough cash in your account to make other -- legitimate -- payments.
Key takeaway: Don't use your debit card if you're shopping online and worried about fraud. Your credit card offers much more protection.
3. When you're booking flights and hotels
If you have a travel credit card, you may be able to access a host of perks when you're planning a trip. For example, the best travel credit cards might give you travel insurance, lounge access, free checked bags, extra rewards on flights and hotels, and more. Plus, many travel cards don't charge foreign transaction fees.
Even if you don't have a specific travel card, your ordinary credit card will certainly give you more protection than a debit card. It may even offer some of the benefits above -- check your card's features to find out.
Key takeaway: Don't use your debit card to book your vacation. You'll miss out on the extra purchase protection that comes with any credit card booking, and even more so if your card has extra travel perks, such as insurance.
There's a time for both debit and credit cards
Credit cards aren't for everybody. If you've had difficulties with debt or worry about overspending, you may not even want one. Debit cards are also better for, say, ATM withdrawals and certain other transactions.
But if you do have a credit card, it will often trump your debit card in terms of points, protections, and perks. Just watch out for fees and be sure to pay your balance down each month. There's no point in earning lots of rewards only to have them eaten up by interest payments.
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