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When should you use a credit card or debit card?

Alicia Babaee, Consumer Finance Specialist
Written by Alicia Babaee, Consumer Finance Specialist

28 July 2020

When it comes to credit cards vs. debit cards, is one better than the other? Each has its advantages, so it's useful to know when to use one over the other.

A stack of five credit cards

Most people use a debit card for day-to-day spending, and a credit card for bigger purchases. But have you ever thought about using your credit card more often? You might benefit from doing so.

How does a debit card work?

If you pay by debit card, the money comes out of your bank account. It’s like you’re paying with cash. 

But, with a debit card, if it gets lost or stolen, you can cancel it immediately. You’ll even get some fraud protection too.

If you pay with a debit card in a shop, you can either use contactless for smaller amounts, or you can use chip and PIN. You can also use a debit card to take cash out of a cashpoint.

What are the pros and cons of a debit card?

As with anything, debit cards have their pros and cons. Here are some examples.

ProsCons
Broadly accepted in the UK and around the worldYou can only borrow money from the bank if you’ve already arranged an overdraft, otherwise you can only spend the money in your account
They’re safer because if your card’s stolen or you lose it you can cancel it immediately, and you won’t lose any moneyAn overdraft might be expensive to use
You only have to carry a card in your purse or wallet, but you have access to all the money in your bank accountYou don’t get as much protection as you do with a credit card, so if you lose it or it gets stolen, you could end up out of pocket.
You might have access to an overdraft, which means you can borrow money from the bank if you need to
You can pay online or over the phone, as well as in a shop or restaurant
You can use it to get cash from an ATM, usually without paying a charge
You might be able to get £50 cashback at the till in certain shops.

When’s it better to use a debit card than a credit card?

It’s a good idea to think about when you should use your debit card, rather than a credit card.

It’s wise to use a debit card:

  • for small everyday purchases such as coffee or groceries

  • if you already have a lot of debt

  • if you want to keep track on your spending.

How does a credit card work?

A credit card is a way of spending money you don’t have. You borrow the money and pay it back later – a bit like a loan. 

But, instead of them giving you an agreed sum of money, your card provider gives you a credit limit. You can spend up to that limit as and when you please. It might be a few hundred pounds, or it could be several thousand pounds.

When your monthly credit card statement arrives, you pay it off either in full or in part. You just need to make sure you at least make the minimum monthly repayment.

You can also take cash out using a credit card if you need to, but this can be expensive.

What are the pros and cons of a credit card?

Credit cards can be great in some ways, but not so great in others. Here are some of the pros and cons.

ProsCons
You can spend more money than you have and pay for unexpected expenses, or spread the costThere's a risk of getting into unmanageable debt
It's a flexible way to pay for things in shops and restaurants, or onlineInterest can be high if you don't pay the balance in full
They are easy to carry and use, most are widely acceptedYou might be tempted to buy things you don't need
You can sometimes get 0% interest introductory dealsCash withdrawals charger a daily interest, much higher than your APR
It's safer than cash because if you card gets lost or stolen, you can have it cancelled
You are protected from scams thanks to Section 75
You can get advantage of rewards or cashback schemes

When’s it better to use a credit card than a debit card?

There are some features of credit cards that mean they’re sometimes a better choice to use than a debit card. You’ll need to plan how you’re going to manage your card, to make sure you don’t spiral into debt.

Some reasons why you might chose to spend on your credit card than your debit card include:

  • To spread the cost – If you need to make a major purchase, such as a new washing machine or a holiday, you might have enough money to pay up front. By using a credit card, you can buy now and pay later, spreading the cost.

  • If yours has a cashback scheme – Some credit cards give cashback, so you can earn money on your spending. You could pick something to use your credit card for – such as fuel or food shopping – and repay your balance before you pay interest. You’d get the cashback, but wouldn’t get yourself into debt.

  • To take advantage of other rewards schemes – Some credit cards offer rewards like airmiles or shopping vouchers. If you find the right card for you, and manage it sensibly, you could really benefit from the rewards.

  • To build a credit score – If you need to improve your credit rating, using a credit card sensibly can help you to boost it. Once you’ve done that, you’ll be able to get better deals, lower rates and a higher credit limit.

  • If you need to protect your purchase – If you’re buying something between £100 and £30,000, you’ll get more protection if you use your credit card. Your credit card provider is jointly liable with the supplier for any faulty or substandard purchases. If the supplier goes out of business and you can’t get your money back from them, contact your credit card provider.

  • When travelling - Credit cards are a much safer way to spend when travelling because if you rack up any fraudulent charges, you won't be out of pocket. You can simply contact your credit card provider and have those charges removed.

Remember that withdrawing cash using your credit card is extremely expensive. Read more about whether you should withdraw cash using your credit card.

Find the best credit card for you, whether you're looking for 0% card for balance transfers or purchases or day to day spending and rewards

Compare credit cards

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  • How to choose a credit card that suits you
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