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difference between a debit and credit card

Help! Should I Use My Debit or Credit Card for Holiday Shopping?

Budgeting / October 1, 2020

For some, the holiday season is all about celebration and joy, but for others it can be a stressful financial time of year. Buying gifts for loved ones doesn’t have to be a hassle, especially if you budget your money wisely and use the right card for your needs. 

So how do I know whether I should use my debit card or credit card on holiday purchases?

Well, a lot of the decision is based on personal factors; however, when you understand the difference between a debit and credit card, it can help you determine the option that works best for you. 

As a local bank in the Kansas City area, Cornerstone Bank not only helps our customers with their everyday financial needs, we also help them on a personal level to make the most out of their money. If you’re not sure which card you should use this holiday season, keep reading and we’ll help you figure it out.

What is a debit card?

A debit card, sometimes called an “ATM card,” holds funds that are in your checking account. So with every purchase you make, money comes directly out of that account, and you’re good to go. If you use your debit card to buy something, you’re assuming you have that money available rather than spending money you technically don’t have. 

Since debit cards depend on the money that’s in your account, your bank may add on an overdraft fee if a purchase costs more than what’s available. However, not all banks are the same, so you want to speak with your banker about those kinds of fees. Some banks lower the fee if you connect your checking account with a saving account (and they’ll transfer money between the two when you overdraw your account). In other cases, a bank will allow you to have a negative balance for a certain period of time before tacking on a fee. Then there are banks who will add a fee right away. 

Your debit card is also the card you use at the ATM. It allows you to withdraw money from your account, deposit money, and whatever other activities you can do at your bank’s ATM. Basically, a debit card is your direct link between your checking account and you. It acts similarly to cash or a check (though the funds typically process quicker than writing a check). 

What is a credit card?

A credit card represents a line of credit you have to spend that’s beyond the money you actually have in an account. Based on your credit score and history, your bank gives you a limit that you can’t spend beyond. Many people use credit cards for larger purchases so they can slowly make monthly payments or to build up their credit score. 

Speaking of credit score, this is one of the biggest aspects of a credit card you should keep in mind. One of the biggest differences between a debit and credit card is you don’t build credit with a debit card, and credit is vital for things like getting different types of loans, buying a home, getting a new car, and even finding the best interest rates. Unless you are extremely wealthy, maneuvering through life without a credit card could be a major challenge. 

The thing about credit cards is they can both help and hurt your credit score, depending on how you use them. Here’s what we mean by that through a couple of examples.  

Scenario #1: You only use your credit card on purchases you know you can pay off when your next bill arrives. Therefore, you keep a low balance and pay each bill on time. Even if you make a larger purchase, you continue chucking away at your balance by at least paying the minimum monthly requirement (going above that amount would be best). As a result, your credit score will continue increasing, and your credit limit will likely increase as well. 

Scenario #2: You often use your credit card to buy things you can’t afford with your debit card. This causes you to wrack up expenses or even max out your limit. With each bill, your minimum requirement becomes higher and higher until it’s hard to pay on time. In some cases, you may even miss a monthly payment. This may lead to a dramatic decline in your credit score, which can hinder your ability to get future credit cards, rent apartments, find loans, etc. 

At the end of the day, credit cards can be a great tool to secure your credit and boost your financial situation, but you have to be smart about how you use the card. If you start spending willy nilly without considering the consequences, you could be doing yourself a lot of harm in the long run. Remember, it may sound easy to swipe that card at first, but you will have to pay back everything you charge with interest

For some, interest can be a big kicker. A debit card doesn’t accumulate interest because there’s nothing you have to “pay back.” You’re only spending the money you already have. However, with credit cards, your balance will start accruing interest over time, which is why it’s often best to pay off your balance at the next bill cycle if you can. 

A benefit of using credit cards are rewards. Oftentimes, credit cards come with cash back rewards or some kind of point system as an incentive for you to make purchases. For example, you may have a credit card that gives you a certain amount of cash back every time you spend at a gas station. The same goes with travel cards. For many people who use their credit cards responsibly, the cash back rewards make credit cards even more worthwhile. 

The difference between debit and credit cards for holiday shopping

Whenever you start holiday shopping, you may wonder if it’s best to use a credit card for purchases or a debit card. While we can’t give you an overarching answer—everyone’s financial situation is different—we can give you a few things to consider when making your decision. 

Budget

If you are on a strict budget, it may be easier to use your debit card to ensure you stay within that budget. It is so much easier to just swipe your credit card and look at the numbers weeks later. Without careful monitoring and paying attention to each gift you buy and exactly how much you’re spending, it can be hard to stop yourself when you need to. In some cases, people think, “Oh, I’m sure I can pay this back later, so I’ll go a little over budget,” whereas with a debit card, that may not be an option, especially if you start running low on funds. However, if you know you can keep track of your budget with a credit card, then definitely go for it!

How to Make the Most Out of Your Holiday Shopping Without Breaking Budget →

Returns and refunds

Some people choose to use their credit card for holiday shopping because they receive their money back faster after returning an item that doesn’t work. Especially with fraud, credit cards often have more security around them, making it easier for you to have your funds returned while the investigation continues. For many, this is extremely important during the holiday season when fraudulent charges can become more prevalent. 

Cash back rewards

Many people use their credit card over their debit card to receive cash back rewards on their holiday purchases. Before you assume which kind of rewards you can get and which purchases are eligible, make sure you talk to your bank. If your current credit card doesn’t come with the perks you like, it may be worthwhile to use your debit card. Or you can apply for a different credit card, as long as you can handle having another line of credit on your hands. 

Credit score

You should definitely check up on your credit score before you start making hefty purchases on your credit card. If your score falls in the poor range, you may want to hold off on using your card and focus on making payments, lowering your utilization, and generally upping that score. If you have a low score and add more to the debit, it may be hard to crawl out of and make your monthly payments even larger. 

Credit utilization

How much of your credit you’ve used is also something important to consider before you start your holiday shopping. The difference between a debit and credit card is, while with a debit card you may simply run out of money, with a credit card, you can keep going until you max. However, you don’t want to max out your card. As a general rule, you want to keep your credit utilization below 30%. So if you have enough room to do some holiday shopping, then great! However, if you’re nearing that 30% or even over that point, you may want to stick with your debit card. That way you can maximize your credit score. 

Keep in mind that these are all merely suggestions. You know yourself and your financial situation the best. If you’re a Cornerstone Bank customer (or want to be one!) our bankers are always available to help you out. We can even help you with gifts for college students.  

Since we are a local bank, we see our customers as friends and family, not just another account number. We want you to thrive and be able to buy the gifts you want for your loved ones. So we’re here to sit with you and help you make a budgeting plan, regardless of whether you want to use your debit or credit card. 

Learn more about the difference between debit and credit cards with Cornerstone Bank. 

More than anything, our bankers are here to help you with any of your financial needs. Since 2001, we have been a primary resource for our customers across the Kansas City metro and the country. We take pride in watching our customers thrive, no matter who you are. 

We always put our customers first, and that means giving them the best banking has to offer. We don’t believe in simple banking; rather, we go above and beyond to help our customers make their money work for them. 

For more information, visit our Overland Park office or give us a call at 913-239-8100 to let us know how we can help.

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