Believe it or not, a credit card is usually a better value than a debit card
An FKD Feature exclusive

Personal finance experts spend a lot of energy trying to prevent us from using credit cards – and with good reason. Many of us abuse them and end up in debt. But contrary to popular belief, if you can use the plastic responsibly, you’re actually much better off paying with a credit card than with a debit card and keeping cash transactions to a minimum. Let’s examine why your credit card comes out on top.

Signup bonuses

Applicants with good credit scores can take advantage of credit cards with signup bonuses worth anywhere from $50 to $500. Other credit cards offer a ton of points for signing up for. And these points can be redeemed for fun stuff. This is in contrast to debit cards that usually offer little or no signup bonuses or rewards.

Rewards and points

Many credit card rewards work on a point system, where you earn up to five points per dollar spent. Often, companies will offer special three-month promo periods where spending in a certain category, like restaurants or transportation, nets you double or triple the usual points. When you reach a certain point threshold, you can redeem your points for gift cards or buy items outright from the credit card company’s online rewards catalog.

Cash back

The cash-back credit card was first popularized in the United States by Discover, and the idea was simple: Use the card and get 1 percent of your balance refunded, regardless of what you bought or where you bought it. Today, the concept has grown and matured: Some cards now offer 2, 3 or even 6 percent back on selected purchases. Some cards, like the Fidelity Rewards card, offer a higher rate of cash back (2 percent on all purchases), but only if you deposit your cash directly into a Fidelity investment account.

Frequent flyer miles

This perk predates almost all the rest. Back in the early 1980s, American Airlines, followed closely by United Airlines and US Airways (now merged with American), began offering the chance to earn frequent flyer miles via an affiliated credit card. Now, it seems like every airline offers at least one credit card.

Safety

Paying with a credit card makes it easier to avoid losses from fraud. When a thief uses your debit card, the money goes missing from your account instantly. Legitimate expenses for which you’ve scheduled online payments or mailed checks may bounce, triggering insufficient funds fees and making your creditors unhappy. Even if not your fault, these late or missed payments can also lower your credit score. It can take a while for the fraudulent transactions to be reversed and the money restored to your account while the bank investigates.

Grace period

When you make a debit card purchase, your money is gone right away. When you make a credit card purchase, your money remains in your checking account until you pay your credit card bill.

Universal acceptance

Certain purchases are difficult to make with a debit card. When you want to rent a car or stay in a hotel room, you’ll almost certainly have an easier time if you have a credit card. Rental car companies and hotels want customers to pay with credit cards because it makes it easier to charge customers for any damage they cause to a room or a car.

Building credit

If you have no credit or are trying to improve your credit score, using a credit card responsibly will help because credit card companies will report your payment activity to the credit bureaus. Debit card use doesn’t appear anywhere on your credit report, so it can’t help you build or improve your credit.

Takeaway

There are, of course, times when it is not wise to use a credit card. If, for example, you tend not to pay your credit card bill on time, or if you tend to overspend and indulge when you simply don’t have the money, then it might be better for you to stick with cash or debit card transactions. If these are not problems of yours, then opt for a credit card!

 

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Posted 03.11.2019 - 12:32 pm EDT