So, which is better? Well, as with many other things in life, it depends. If you lack a credit history, or have an unfavorable credit history, a debit card may be the best thing for you while you begin to establish or repair your credit worthiness. If you find yourself tending to spend more than you can afford, a debit card will likely keep your spending in check, because you can’t spend what you don’t have in your bank account, right?
However, if you are a disciplined manager of your finances and can control your spending habits, then using a credit card for purchases can offer you many more benefits than a debit card. Not only does effective management of a credit card build up a great credit rating, but it may also give you added benefits, such as certain buyer protections, cash back, airline mileage rewards or other kinds of useful rewards. However, keep in mind that to really benefit from a credit card, you must have the discipline to pay off the full balance every month to avoid interest charges and late fees. That way, the benefits you may reap aren’t offset by the interest charges you may incur.
When you consider the many credit card offers you may find online or in your mailbox, it is best to focus on offers that contain:
- a credit card with no annual fee
- a low interest credit card
- a rewards credit card
It used to be that almost every credit card had an annual fee attached to it. However, many years ago, credit card issuers began to waive the fee in order to attract customers. Some credit card companies still charge annual fees, while others issuers are bringing back annual fees to boost their profits, so be wary of the annual fee in any offer. Some credit card annual fees are waived only for the first year, so be aware of that fact, as well.
A low interest credit card is valuable if you think you may be carrying a balance against your account at any time. Remember, it is best to pay off your entire balance every month, but if something comes up to prevent you from doing that, you don’t want to get socked with a high interest rate.
Some issuers will make introductory offers for 0% finance charge for purchases or balance transfers for the first 12 months, or even 18 months (so called “teaser” rates), only to have a very high annual percentage rate (APR) kick in after that period. I would consider a “high” APR at 12% or more, while a low interest rate would be an APR of less than 12%.
A rewards credit card, such as an airline credit card, allows you to generate reward points with almost every purchase made on the card, usually 1 point for every dollar spent, and in some cases even more! These rewards can be redeemed for gift cards or other benefits, or in the case of an airline mileage card, points to redeem for airline travel. The best rewards credit card for you depends on what rewards are most practical for you. One of my rewards cards allows me to redeem points for gift cards to my favorite discount stores and restaurants, places I would shop or dine at anyway, so those are very useful to me, because they actually save me money I would have spent anyway.
By now, I’m sure you can see my favoritism for credit cards over debit cards. However, I only recommend credit cards to those who can show financial restraint, will only use cards for necessary purchases and are resolute in paying off the full balance due every month to avoid finance charges. It pays to shop around on the internet for the right card for you. Many of the best credit cards can be obtained via online credit card application.