Credit vs. Debit Cards for Online Shopping

It’s a common distinction that most of us barely pause to consider: debit versus credit, and when to use one or the other when we shop online. Some people use debit because they feel it’s easier to keep track of their money; others only use credit, because they want to earn rewards, or because they feel it’s more secure.

The type of payment you use when cash is not an option should merit more than passing consideration. Several key differences exist between debit and credit cards, and each has its relative merits and drawbacks.

What’s the Difference?

Though debit and credit cards appear identical, with expiry dates, PIN codes, 16-digit numbers and VISA or MasterCard logos, looks can be deceiving. Debit cards only let you spend money that you actually have, and draw from funds held by the card issuer. In most cases, this is a bank, and the debit card draws from an affiliated checking account.

Credit cards, on the other hand, let the cardholder borrow money for purchases up to a pre-set limit. This money gets borrowed every time the cardholder swipes the card for a purchase or withdrawal, and the money gets repaid with interest. Credit cards generally get approved for purchase with the user’s signature, while debit cards use the PIN.

Advantages of Debit

The main advantage of a debit card is that it allows you to practice controlled spending.

“Since your debit card is tied directly to your bank account, the risk of overspending is far less,” says Kendal Perez, savings expert with CouponSherpa.com. “If you’re on a tight budget or trying to climb out of debt, a debit card is your best method of payment next to cash.”

When it comes to online spending, debit cards emulate the effectiveness of cash for sticking to a budget. If you don’t have the money to spend, then no amount of impulse can complete the transaction. Debit cards also have no fees associated with their use for purchases. In addition to interest charges, some credit cards have annual membership fees, over-limit fees and late-payment fees.

Debit cards are not without their drawbacks, though. Many experts recommend that, when shopping online, you use debit cards only with online vendors you trust implicitly.

“Scam websites can use your debit card to fraudulently drain your bank account,” says Patrick Johnson, an eCommerce consultant. “In this case, you would have to wait for your bank to fully investigate before you would get your money back, a process that can take weeks or months.”

Some banks will even hold you liable for fraudulent charges, so if a scam website saves your payment information for misuse, you will have no recourse.

When to Use Credit

If you do a lot of online shopping, you can rack up serious rewards through the dedicated use of a credit card. Nowadays many cards come with perks that range from cash rewards, to travel points, gift cards, and discounts that accrue at a rapid clip. To derive the most benefit from this, you can simply pay off your balances at the end of each month and avoid interest.

Credit cards also come with security features that make it safer to use them online.

“Credit cards typically have purchase protections that enable the owner to rescind payments in cases of fraud or disputes with a merchant,” explains Pamela Talley, marketing manager for CompareCards.com. “Debit card purchases are usually not protected against fraud or disputed charges.”

Responsible online use of a credit card can also benefit your overall credit score. All payments, both timely and late, will show up on your credit report, and a positive history of use can pay dividends when you apply for a loan or mortgage.

The Bottom Line

In most cases, the benefits of online shopping with a credit card clearly outweigh those of a debit card. However, in order to gain these benefits — and not shoot yourself in the foot — you must practice financial responsibility. If you worry about the limits of your discipline, then use a debit card and restrict your shopping to websites you trust.

Written on March 15, 2016

Self Lender is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@selflender.com.

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