Credit cards are powerful personal finance tools. While you should use them with care, they can make it easier to make everyday purchases.
You may wonder if you can replace your debit card with a credit card. While your credit card can’t do everything your debit card can do, it can do a lot — and in some cases, more. In fact, you can handle most of your financial needs by using a credit card instead of a debit card.
Let’s review the differences between both of these card types below.
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What is a debit card?
You can use a debit card to pay for purchases. Your debit card is linked to your checking account, and the money is withdrawn from your bank account when you buy something with your debit card. So, you’re using your own money to buy things when you swipe your card.
What is a credit card?
Similarly to debit cards, you can also use a credit card to buy things. However, your credit card isn’t linked to a bank account. Instead, you’ll be borrowing money when you make a purchase.
Since your card is not linked to a checking account, you’ll owe the credit card company money when your credit card statement comes.
If you don’t pay your entire balance in full every month when your credit card bill arrives, you’ll be charged interest on the balance — which can get very expensive. Using your credit card to charge what you can afford and paying the entire monthly balance is a wiser move.
Can you replace your debit card with a credit card?
So, can you replace your debit card with a credit card? For the most part, yes.
You can purchase items at most in-store and online retailers using your credit card. With rewards credit cards, you can earn valuable rewards on your spending. Debit card rewards are harder to come by; they’re usually not very generous.
Additionally, credit cards include extensive fraud protection. You’ll be protected if your credit card is used to make fraudulent purchases because most top credit cards offer $0 fraud liability perks as a benefit.
So, using your credit card just like you would a debit card can be a smart move — but it’s essential that you use caution. Don’t charge your card without first considering your financial situation. Stick to your budget and only charge what you can afford to pay off each month. Credit card debt can be an expensive problem that negatively impacts your credit score and finances.
Credit cards can help you build credit
Why else would you want to use a credit card regularly? If you use your credit card with care, you can build your credit. You can increase your credit score by charging purchases on a credit card and then making regular payments on it to pay off your balance every month.
Don’t use your credit card to withdraw cash
Cash withdrawals are one thing your credit card doesn’t do as well as a debit card. You can use a credit card at an ATM to get money, but it’s not the best financial move.
Your card issuer will charge you a cash advance fee. Typically, these fees range from 3% to 5%, meaning you’ll be making an expensive choice. Let’s say you decide to use your credit card to take out cash at an ATM, and your card issuer charges a 5% cash advance rate. If you take out $500, you’ll pay a $25 cash advance fee. Plus, cash advances typically start accruing interest immediately, rather than at the end of your credit card’s billing cycle, like for card purchases. If you instead use your debit card to get cash at your bank’s ATM, you’ll pay $0 in fees.
Should you stop using your debit card?
With the cost of cash advance fees in mind, you probably won’t want to get rid of your debit card any time soon. Here’s what you can do instead: Plan to use your debit card to get cash from ATMs, but get into the habit of using your credit card to make everyday purchases. That way, you can build your credit, potentially earn credit card rewards, and take advantage of credit card fraud protection.
Are you thinking of applying for a credit card? Review our list of best cash back credit cards to learn more about cards that offer cash back rewards.