When to Choose Credit Over Debit

“Debit or credit?” You hear it almost every time you use plastic and you probably have a preferred answer.

But did you know there are some circumstances when one might be better than another?

Here are five situations when you might want to choose credit over debit:

Online Purchasing

When shopping online, there’s no question: you should always use credit because it’s much harder to get a refund using a debit card than it is with a credit card.

Your chances of successfully getting a refund for online scams — one of the biggest complaints the Better Business Bureau (BBB) gets every year — are far greater with credit than debit. In fact, claims over purchases of $50 or more must be resolved within 60 days, as mandated by Federal law.

Making deposits online is another area where the BBB receives many complaints; so paying a deposit with a credit card is another good way to safeguard your transaction.

Restoring Credit

If you have bad credit and are trying to build it back up, you might want to consider using a credit card whenever possible. Debit card transactions are usually not reported to the major credit reporting agencies.

Provided you pay the balance off at the end of every billing cycle and don’t spend money you don’t have, this can be a great way to build up credit.

Are you worried that this system will have you racking up too much debt?

Set up a separate bank account just for the money you plan on spending with the credit card and then transfer the money to your credit card as you spend it. You can also track your real time spending using a free money management tool like Mint.com.

With Mint, you will be able to easily track how much money you’ve spent and rebuild your credit, while still maintaining financial responsibility.

Recurring Payments

A lot of people don’t like recurring payments even though they make it easy to pay your bills on time.

One problem with using debit for recurring payments is if you make an accounting error, the payment will still go through and you’ll have overdraft charges on top of the bill.

Even if you only overdraw a few times a year, the high fees add up quickly. Using a credit card for your recurring payments reduces the risk of accidentally overdrawing your bank account.

Travel-Related Purchases

Many travel-related purchases, like rental cars and hotel rooms, require a credit card when checking in.

You also might be required to make some kind of a deposit when you make a travel reservation. If you use debit instead of credit to make a deposit, the money is immediately debited from your bank account, putting you out several hundred dollars in cold, hard cash.

Finally, many credit card companies offer premium points for customers making travel-related purchases or include extra services, like extended insurance on car rentals.

Big-Ticket Items

Know your credit card’s reward system inside and out to make the most of your big-ticket spending.

Of course, you should always save up cash for any big-ticket items before you throw down your credit card. Mint.com’s “goals” tool helps create a savings plan that allows you to reach your goal easily over time.

As long as you have the cash on-hand, paying for pricey items on a credit card and then paying the balance off immediately is a great way to take advantage of your credit card’s reward system.

Final Analysis

Credit cards tend to offer more in protection and rewards. If you’re very good at budgeting and don’t overspend, there are few reasons not to use a credit card — especially if you avoid interest charges by paying off the balance at the end of each billing cycle.

Still, most people will not find this a realistic option. These people should only use credit cards when fraud is a concern.

Nicholas Pell is a freelance writer based in Hollywood, CA. He never carries cash.