Cash, debit, or credit?

A person swipes their debit card.

When should you use cash or debit and when should you use credit?

You may have heard the phrase “money is money.” But that’s not necessarily true. Cash, credit, and debit work differently. Although many payment choices come down to your personal preference, it’s better to make a conscious choice.

Ask yourself a few questions about how you might pay:

Do I have enough cash to cover this?

Cash is real and immediate. When you use cash for purchases, there’s no approval required and you won’t be charged interest. Using a debit card is similar: it’s like cash you have but not on hand. When you swipe your debit card, the money will be electronically deducted from your bank account, so you need to make sure you have enough in your account to avoid overdraft fees.

But when it comes to paying for big-ticket items like cars, houses, computers, and college tuition, few people have enough funds on hand to pay in cash.

Will I have the cash soon?

Credit cards allow you to “borrow” money for a short period. Using a credit card gives you a little wiggle room before you have to actually pay for what you purchase. The risk of using credit is that it can be easy to purchase more than you can pay off each month, which can result in interest charges. If you do not pay your full balance by the payment due date each month, you will be charged interest and your debt will increase.

What other funding options do I have?

Loans and lines of credit can be useful when you’re purchasing a big-ticket item that may benefit you for years to come. If you are qualified for a loan or line of credit, both may provide you with funds to use as you wish that you’ll repay over a predetermined period. You might consider using one of these forms of credit for buying a car, or eventually, a home.

Whether you want to earn rewards or build credit, find out what credit card is right for you.

Want to read more about the basics of credit?

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