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4 Reasons Why You Should Never Use a Debit Card

Written by Jessica Steer
When the debate between which is better – using a credit card or a debit card – many will argue that the answer is simple: debit cards draw directly from your bank account and therefore keep you from amassing credit card debt. That logic is hard to argue against, but is it really so simple?
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    In fact, there are many benefits to using a credit card over a debit card. A credit card allows you to build credit, earn rewards and receive better protection against fraud, just to name a few. But it’s best when you use a credit card like a debit card – reap the benefits of a credit card while keeping your debt load down. Let’s examine this topic further and explain why using your credit card exclusively could render your debit card irrelevant.

    1. You can’t build credit with a debit card 

    Everyone remembers the first time they received their first credit card in the mail. It’s a feeling similar to getting your first car – the possibilities seem endless. Just like when you first start driving and building a driving record, you start building a credit history once you start using a credit card regularly. The longer you use, without a missed payment or accident, the better your record will be.

    This is an advantage that credit cards have over debit cards. If you only you used a debit card you would have no credit history, and therefore be in an undesirable position when the time comes to apply for a loan, mortgages, car financing, etc.

    Credit cards can also be used to repair your credit if needed. Even if you have bad credit, you can get a guaranteed credit card and start rebuilding your credit with that. 

    2. Credit cards offer greater protection

    Most banks do not charge you an annual fee for you to specifically use their bank card. Why is that? Well for the simple reason you are getting little more than access to your own money. Banks will charge monthly service fees, of course, but that is to compensate for the various services they provide as a financial institution (convenience, bank tellers, etc.). The debit card, however, is merely a key to which you use to unlock your money. 

    Credit cards, on the other hand, come with annual fees because they provide protections and services you can’t get with a debit card. Travel protection, for instance. Some credit cards will offer travel services like trip cancellation insurance, medical insurance, cash advances, and better protection if the card is stolen. 

    Another popular feature of credit cards, which you can’t get with a debit card, is purchase protection. That covers you for lost or stolen possessions that were purchased on your credit card within a certain time frame. A common example would be the husband who lost his wedding ring snorkelling while on his honeymoon. Fortunately, the ring was purchased on his credit card and he was able to get a full refund from the credit card company. This would not have been possible if he used a debit card. 

    Lastly, fraud protection is much stronger with a credit card than with a debit card. If a criminal gets ahold of your debit card and starts tapping all over town, your bank account could be drained before you know it. This could leave you in a pinch while (hopefully) your bank initiates an investigation before returning the funds. With a credit card, you’re not out of pocket when a fraudster is in action.

    3. Rewards, points & cash back galore

    You can use your debit 500 times in one month, but don’t expect your bank to throw you a parade. In fact, some banks charge you for debit transactions over a certain monthly limit. The only reward for using a debit card exclusively is you will not have any debt.

    Credit cards, however, offer rewards programs like travel points and cash back incentives. For example, some credit cards give you air miles for every dollar purchased, while others offer a percentage of your purchase back in cash. This can be anywhere from 4% to 1% depending on our purchase.

    4. Emergencies happen... 

    There is a certain peace-of-mind when you have a credit card in your wallet or purse. Assuming it hasn’t been maxed, you know that you have available funds should an emergency come up. That’s in sharp contrast to a debit card where you only have what’s available in your bank account. 

    Furthermore, debit cards have daily max withdraw limits so you cannot take out more than a pre-determined amount. If you have a vehicle breakdown and need thousands to get it back on the road, a credit card can be more useful than a debit card. Credit cards rarely have purchase limits. 

    Going pure credit card? Be responsible 

    If you’re feeling like a pure credit card existence is the way to go, it’s important that we go over some basic rules of owning a credit card. Just in case you’re new to the game. 

    • Know your limit, stay within it. Don’t overspend and go beyond on your credit limit or you will suffer punitive interest rates or get rejected at the point of purchase. 
    • Don’t miss payments. You need to always make payments in order to build a positive credit history. 
    • Try not to utilize more than 30% of your available credit. There is something called credit utilization, which basically means the less credit you use the better it looks on your credit report
    • Pay your balance in full each month if possible. This will help you avoid debt and interest payments while improving your credit score.

    Spring Financial serves Canadians with practical advice on personal finance and credit-building solutions. Whether you have bad credit or no credit, we know how to help make your financial future brighter. Bookmark and subscribe to our blog for more useful tips, or speak to one of our consultants today to see how we can help!

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