Most store purchases today involve using some form of plastic payment, and that means big bucks for the likes of Citigroup, MasterCard, American Express, and other issuers of credit, debit, and charge cards. More and more vendors, including big names McDonald’s, Home Depot, CVS, and Walgreen are now even permitting quick, no-signature credit card transactions.

I go through life with my credit card on hand, but I charge only what I can afford to pay for, and I pay my bills on time. All around me, though, I see people with debit cards. I have one, too, from my bank, but I never use it. I thought about this the other day, and I couldn’t remember exactly why I was sticking with credit. So I thought I’d take the opportunity to review the differences between the two.

• When you pay with a credit card, you’re essentially borrowing money from a bank, and you pay on the loan when you pay your bill. When you pay with a debit card and use a PIN, the funds are immediately withdrawn from your bank account. If the debit transaction requires a signature, it may take a few hours or days for the money to be withdrawn.
• Many credit cards offer the chance to earn cash back or other “rewards.” Relatively few debit cards do the same.
• Credit cards help you establish a credit history and therefore a credit score, so that you can start to more easily borrow money. Not so with debit cards.
• With credit cards, if your card is stolen and used fraudulently, you’re typically liable for only $50 in unauthorized charges, though some cards offer zero liability. With debit cards, that fraudulent use will have sucked money out of your bank account, and it may take a little while to get it back. You may end up paying more than $50, especially if you don’t report the theft within a day or two.

Tips
Here are some strategies to consider:

• Have a separate bank account for your debit card to draw from — one that doesn’t contain most of your life’s savings.
• If an item that you order arrives damaged, credit cards offer more protections, such as the ability to contest the transaction, than other forms of payment do.
• If you’re mired in credit card debt and have trouble paying your bills on time, or if you just have trouble not charging more than you can afford, then consider favoring your debit card. Credit cards can easily get you in a lot of trouble.
• Choose your cards, especially your credit cards, carefully. They can be great conveniences, but they can also needlessly eat up a lot of your money, such as when they charge you interest rates. Some big banks charge more than 25% in annual rates. I favor the American Express Blue, CitiCard Platinum Select, and Discover’s Platinum Cashback cards.

Will That Be Credit or Debit?