Credit cards are great financial products when they’re used in the right way. From purchase and fraud protection to travel insurance and rewards, credit cards can offer you some extra protection that debit cards simply cannot. So let’s get to it! Here are a few reasons why I always pay with a credit card over a debit card.
Purchase Protection
When you pay for purchases using a credit card, there are usually insurance policies set in place to extend the warranty of the products you buy. At least, this is the kind of protection you should be looking for when you sign up for a credit card in the first place.
Let’s say you buy a new couch that comes with a one year warranty. Many credit cards will double the warranty to two years. Maybe the package arrive at your door damaged but the company you purchased it from won’t refund you. Chances are the credit company will.
Just to be clear, I’m not talking about the $5 per month “creditor’s insurance” or “balance protection insurance” add on. Those additional fees are quite honestly scams and I would personally never buy it.
Purchasing products using a credit card gives you an added layer of protection that debit cards simply can’t offer.
Fraud Protection
If there is a payment on your credit card that you did not charge, simply call up the credit company to dispute it. You likely haven’t paid off the card yet so this credit charge is sitting in limbo. It’s not your money on the line! You’ll probably have to fill out some forms but in the end, you’ll get the charge taken off without a huge hassle and will most likely be issued a shiny new card.
Now on the other hand, if there is a payment on your debit card that you don’t recognize, the money is already gone. Chances are the bank will freeze your account and it may be a while before you can access your funds.
If you haven’t already, make sure to sign up for email alerts that let you know whenever your credit card has been charged. Are you sitting on the couch in Vancouver watching a movie and get an email that you bought a TV in Miami? Odds are that probably wasn’t you. Call up the credit company to dispute it and they’ll take care of it for you. Believe me, this happens more often than you might think.
Travel Insurance and Perks
Many credit cards will offer travel insurance as part of the deal if you purchase your trip on the card. I’m talking all kinds of travel insurance like travel emergency medical insurance (sometimes up to a million dollars), trip cancellation insurance, flight delay insurance, baggage delay insurance and more. You name it, you can probably get a card that covers you for it. You can even get discounts or complementary visits to airport lounges! Now not all credit cards offer these perks but my American Express sure does so be sure to read about all the perks your card offers.
Can your debit card do all of that? I didn’t think so.
Foreign Transaction Fees
If you ever travel or shop online from other countries, many credit cards will offer 0% foreign transaction fees and help you save that hefty 2.5% fee. Debit cards will charge anywhere from 1-3% on top of the ATM fees if you’re taking out cash. Save yourself some money and opt for a credit card with no foreign transaction fee!
Rental Car Insurance
Believe it or not, many credit cards offer insurance for rental cars. This obviously only comes into play when you rent a car but it can really help you save on those extra fees. Some credit cards even offer additional discounts at partnering companies. As an example, my American Express card gives me 25% off at Avis and Budget. You guessed it! No, debit cards do not offer rental car insurance.
Rewards
Whether it’s a cash back card, a travel rewards card or just a straight up points card, you’re truly missing out on free money if you’re simply paying with a debit card.
Depending on the credit card you have, you can rewards points, travel points or cash-back on eligible purchases in certain categories like groceries, gas and restaurants. Your debit card won’t offer you rewards of any kind.
Building Credit
We all know the credit game is kind of ridiculous, but it’s one we all have to play. If you use a credit card wisely, you’ll never have to go into debt to build an incredible credit score. Some key aspects to building credit are:
- length of credit history
- always paying your card off in full every month, not just the minimum payment
- keeping your utilization below 30%
When the time comes to rent an apartment, buy a home or buy a car, you are going to be thankful that you built up a great credit score. You will be saving yourself thousands of dollars on those long term loans or you can rest easy knowing you’ll get approved to rent that apartment downtown you really want.
Learn more at 5 Things That Affect Your Credit Score
So, is it better to use debit or credit? With all of the extra perks and protection that credit cards offer, credit obviously wins this battle. If you’ve had a problem with spending in the past, keep your credit limit low or practice using prepaid credit cards before diving into the real deal.
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When we can freely travel again, the insurance perk with many credit cards is a great suggestion!