PhotoMany consumers carry both a debit card and one or more credit cards. They are both plastic and they both can be used to make purchases.

But when should you use one but not the other? Some might use them interchangeably, but they shouldn't.

First, an important distinction: a debit card debits money directly from a bank account. It's similar to writing a check. The money for the purchase comes out of the account almost immediately.

When using a credit card, you are actually borrowing the money from a bank to make the purchase. You don't withdraw the money from your bank account to pay for the purchase until the monthly credit card bill arrives.

Free use of money

If you pay the entire balance that's due, it has cost you nothing to borrow the money. For that reason, credit card companies often refer to customers who pay their bill in full each month as “deadbeats.”

The credit card companies hope you'll accumulate a balance, since they can then charge interest. And credit card interest, outside of loan sharks and payday lenders, is about the highest there is.

The danger of accumulating a large credit card balance is the primary reason to avoid using a credit card. Using a debit card is a pay-as-you-go system, and for that reason many people prefer it.

But by exercising strict discipline, and paying the balance in full each month, there are financial benefits to using a credit card instead of a debit card. However, it requires having a credit card that offers a generous cash back or rewards system. We've profiled some of these kinds of cards here and here.

The important thing, of course, is to make sure you can pay for everything you've charged when the bill arrives. Otherwise, interest charges will eat away at any rewards.

At the same time, some bank accounts will offer depositors rewards and incentives for using debit cards to make purchases. These incentives may include interest on the money in the account and reimbursement of ATM fees, but they require that you make a certain number of debit card purchases each billing cycle.

In the end, a consumer needs to carefully analyze which set of rewards makes the most sense.

Security issue

That said, the issue of security should always remain a consideration. With a fraudulent credit card purchase, the consumer's liability is limited to $50 or less, if the fraud is promptly reported.

But if a criminal gets access to your debit card information, he can clean out your bank account. While some banks have fraud protection, not all do.

For that reason, consumers should be careful where they use a debit card. A good rule of thumb is to never let a debit card out of your sight. If the waiter is taking your check and payment from the table, best to use a credit card.

Purchasing gas at a pump with an odd-looking card reader, better not to use a debit card, since card “skimmers” have become a more common threat.

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