4 Reasons to Choose Credit Over Debit

By Emily Bary | Barron’s Next

Young Americans have a penchant for debit cards. Among consumers aged 18-24, 47% say debit cards are their preferred form of payment, according to a survey by payment processor Total System Services. Within that age group, just 22% prefer credit cards, barely ranking above cash (18%). Credit cards gain in popularity as folks age and make more money, but 20-somethings should reconsider their payment preference earlier in life.

Credit cards offer several benefits that can’t be matched by your debit card. The key thing to remember is that credit-card use doesn’t have to equal debt.

“As long as you pay your statement balance in full each month, you can avoid credit card debt and interest completely,” says John Ganotis, the founder of CreditCardInsider.com.

Fraud protection: Consumers get better fraud protection by using a credit card rather than a debit card. “When someone steals your debit card information and uses it to buy things, the money is usually gone from your account right away and may remain out of your control while the fraud is being investigated, unlike with credit cards,” Ganotis tells Barron’s Next. Plus, if you wait too long to report a stolen debit card, you could be liable for some or all of the stolen funds. “Your liability with credit cards is legally capped at $50, even though most cards have $0 liability,” Ganotis says.

Rewards: You won’t get cash back or airline miles by charging things to your debit card. Meanwhile, it’s a great time to be shopping for a new rewards credit card. Issuers are being particularly generous with sign-up bonuses and other perks in an effort to get new business.

Play the float: With credit cards, you’re essentially getting free money for 30 days, because you can charge things to your card and wait until the end of the billing cycle to pay it off. That means you can put down a deposit for a new apartment tonight even though you won’t receive your paycheck until later in the week. If you pay your full bill on time, the loan is free.

Building credit: One of the key reasons to use a credit card is to build credit. If you only use debit, it can be hard to raise your FICO score, and that could come back to bite you down the line when you want to make a big purchase. “Monitoring your credit and establishing credit can be beneficial for obtaining better rates for future loans both from an automobile standpoint and a home standpoint,” says Eric Aanes, president of Titus Wealth Management in Larkspur, Calif.