Got a debit card in your wallet? The data says you probably do -- research from The Motley Fool Ascent found that in 2021, 93% of American adults had a debit card (according to the Federal Reserve). A debit card is a convenient way to pay for purchases, but it's also a direct link to money in your bank account.
Credit cards don't link to your own money; instead, when you use one, you're borrowing from the card's issuer and paying it back when you pay your bill. Consequently, if someone gets your credit card information and runs up charges, you will have to deal with the inconvenience of reporting the fraud and replacing the card, but you likely won't be out any money of your own. The best credit cards have $0 fraud liability, too.
With this important difference between debit and credit cards in mind, here are a few instances in which you should opt for a credit card over a debit card.
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You certainly can use your debit card for online shopping, but it's not a good idea for several reasons. Your debit card is linked to your bank account, so if your card number is stolen or leaked in a data breach, you could lose all the money in that account.
Depending on when you report the problem to your bank, you may not end up losing any money in the process. But it will still take time for your bank to investigate, and you could be cashless in the meantime.
Purchase protection is another reason to opt for a credit card over a debit card. If you order something and it never arrives, or you were misled about a product and want your money back, you may have little recourse with a debit card. But if you've used a credit card, you can file a dispute with the issuer, who will then go to bat on your behalf.
2. Hotel and rental car reservations
The issue with using a debit card to reserve a hotel room or rental car is the temporary authorization hold. It's common for hotels and rental car agencies to put a large hold on a payment card, in case the customer causes damage to a vehicle or runs up a big room service bill.
If you've used a debit card, you could find yourself unable to access hundreds of your own dollars thanks to a hold.
3. Gas stations
Personally, I'd never use a debit card to buy gas. For one, I have a credit card that pays bonus cash back on gas purchases. For another, gas stations are notorious for being vulnerable to credit card skimmers on the payment systems at each pump.
Gas stations are busy places, and the employees likely don't have time to individually monitor the comings and goings at each gas pump. Thieves use skimmers to steal the card information of the people who pay at the pump. Since a debit card is directly tied to your bank account, you could encounter a lot more hassle if someone steals that information.
While your bank will investigate and you may not lose money if you report fraud immediately, you could still potentially lose access to your own money for a period while your bank does its job. (And since gas stations also sometimes put a hold on payment cards, you could have this happen even if there's no fraud with the transaction or afterward.)
For this reason, it's best to use a credit card to pay for gas -- or go inside to pay an employee directly.
4. A big purchase
If you're buying a big-ticket item, like furniture, a computer, a smartphone, or something else expensive and potentially breakable, using a credit card for the purchase is the better choice.
Remember, the best credit cards come with purchase protection. If your new item is stolen or damaged, and the retailer is unwilling to help you, you could potentially file a claim with your credit card company and get your money back.
Is it ever worth using a debit card?
Personally, I don't use debit cards for many purchases these days, and instead do my everyday spending on credit cards. Credit cards can help you build credit and earn rewards on your spending. Plus, they're not tied to your bank account, meaning the risk of loss from fraud is less. But this doesn't mean debit cards can't still have a place in your wallet.
If you struggle with credit card debt, using a debit card is absolutely better. You won't be borrowing money to use one, and knowing that you're limited to the money in your linked bank account can keep you from overspending.
Another reason to have a debit card in your wallet is access to cash. Many of them function as ATM cards. If you pay in cash frequently, it's handy to keep your debit card on hand so you can take out more as needed.
Debit cards have fewer consumer protections and are far less likely to pay rewards on spending than credit cards. They could still be a big part of your money management, though. Just think twice before using them in the above situations.
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