When to Use Your Credit or Debit Card

We examine how each card works, when you should use a credit or a debit card, and how to make the most of each one. 

Updated: May 21, 2024
Rebecca Goodman

Written By

Rebecca Goodman

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Using a credit or debit card to pay for something is pretty standard these days and most of us have at least one of each in our wallets, whether that’s a physical one or a card stored in an app.

Last September there were 2.12 billion debit card and 354.9 million credit card transactions made, according to UK Finance. While most of us still use cash, card use is increasing and the number of transactions rose 10.9% and 4.1% yearly when compared to September 2022.

So, with all those payments made using a debit or credit card, when is the best time to use each card? There are pros and cons to using each and it’s important to use the right card for the right payment to avoid paying fees or extra interest. 

In this guide we examine how each card works, when you should use a credit or a debit card, and how to make the most of each one.  

What is the difference between a credit and a debit card?

To help you decide whether to use a credit or a debit card, let’s start with some basics. 

A debit card is:

  • A plastic card (or app) which you can use to pay for things, the money will come directly out of the bank account linked to the card.

A credit card is:

  • A plastic card (or app) which you can use to buy things, the money is borrowed from a credit card provider, and you pay this back (with interest usually).

How do credit cards work?

Credit cards are designed for borrowing and when you use one you aren’t spending your own money from your bank account, it’s money your credit card provider has given you.

This money needs to be paid back and if you can’t do this by the end of the month, you’ll usually end up paying interest on the outstanding balance. 

If you miss a credit card payment, you can also be hit with a late fee and a mark on your credit score so that’s why it’s important to use them correctly to avoid any penalties. However, despite the potential drawbacks, credit cards can also be very useful too. 

You can earn cashback and rewards with some of them, and you can use them as a way to pay off outstanding debts and to lower your borrowing costs. A balance transfer card, for example, can give you the chance to pay off a debt without paying any interest on it, for a set period of time. 

How do debit cards work?

Instead of using cash, if you use a debit card you’ll be paying for something — be it a holiday, new coat or even a coffee, with money from your bank account.

You hand over your plastic card, or use an app on your phone or other device, and a few seconds later the money will have left your bank account and will be with whoever you have just paid. 

While most people still have a physical debit card, many have linked their bank account to a gadget such as a phone or smart watch, and can use these to pay for things — again even with these methods the money will then leave your current account within seconds. 

So, the only difference between credit and debit cards is where the money you’re paying with comes from and in summary:

  • Using a credit card means you’re paying with your provider’s money (which you’ll have to pay back), while using a debit card means you’re paying directly out of your bank account.

When should you use a debit card?

You can use a debit card to pay for almost anything and it’s an easy way to buy things.

In fact, in some cases, you may have to use one as some retailers now only accept cards and won’t take cash. 

There are times when it makes more sense to use a debit card and occasions when using a credit card might work best. Here are some scenarios where you might want to use your debit card:

  • Paying for everyday items: From coffee, lunch or a cab, most people use their debit card every day to pay for these types of things.
  • Setting up regular payments: While you may prefer to set up a direct debit or standing order for regular payments, you could use your debit card too. This could be for a monthly household bill, such as your gas and electricity, for example, if you pay for it when you receive the bill. Just be aware that this could be more expensive than paying via direct debit as provider’s usually charge an extra fee for the admin involved.
  • Taking out cash: Even if you don’t use cash that frequently, probably one of the most common reasons for getting your debit card out is for withdrawing cash at the ATM. You’ll need your card and your PIN to do this. Whatever you do, don’t use a credit card to take out cash, as if you do this you’ll be hit with expensive high interest rates.
  • Buying big-ticket items: If you’ve got a big payment coming up, such as for a holiday or a new TV, it’s usually easier to pay by card than in cash. Just be aware that using a credit card in these scenarios usually gives you a little extra protection.

When should you use a credit card?

A credit card is used to pay for something, but as we’ve explained the money used isn’t yours, it’s your credit card provider’s.

There are pros and cons to using credit cards and some situations when it’s better, and some where it’s worse, than using a debit card. Here are some of the scenarios when you might want to use your credit card:

  • Paying for everyday items: There are lots of options when it comes to credit cards and many will pay you — either through cashback or rewards — when you use them. Therefore if have one of these reward credit cards, if you use it to do your everyday spending you will then benefit. However, this only works if you then clear the card each month and pay it off. If you’re not able to do this you’ll end up paying interest on the money borrowed, which wipes out any associated benefits. 
  • Buying a big-ticket purchase: If you use a credit card for an expensive item, whether that’s a holiday, new car, or a new kitchen, for example, you should be able to spread the cost over a set period. This could be by using a 0% purchase card, which lets you borrow the money interest-free for a period of months, for example.

What protection is available with a credit or debit card?

One of the main bonuses of using a debit or credit card, is the extra layer of protection available which you won’t get if you pay in cash.

The type of protection with either card means if something goes wrong with a purchase, you’ve bought a holiday and the provider goes bust, for example, you should have a better chance of getting your money back.

There are two main frameworks which come into play here:

Chargeback (for debit or credit card transactions)

Chargeback is a type of scheme which most UK banks have signed up to and it can be used if you have a problem with something you have bought, a new kettle has stopped working and the retailer isn’t playing ball and giving you a refund or repairing it, for example.

It’s not set in law but it is a useful scheme which you can use if your bank has signed up and you’ve paid on either your credit or debit card. However, the protection available through the Consumer Credit Act is stronger. 

Section 75 of the Consumer Credit Act (for credit card transactions)

One of the main bonuses of using a credit card is the protection available through Section 75 of the Consumer Credit Act. It applies to any items bought with a credit card that are worth over £100 and under £30,000.

You don’t need to put the whole amount on your credit card either, if you just pay part of the amount (the deposit for example) on your credit card, you’re still protected for the full amount.Then if anything goes wrong with the item or service you have bought, your credit card company will help you to get back any money you’ve already spent.

Summary

In summary, debit and credit cards are both used for paying for things but they each have their pros and cons.

If you’re buying a big-ticket item and you use your credit card, you can spread the cost and you’ll benefit from the extra protection of Section 75 of the Consumer Credit Act, for example. Yet, if you don’t pay the credit card off, or you miss a payment, you’ll be hit with fees, interest charges, and possibly a mark on your credit score.

Using a debit card may be easier when it comes to budgeting, as you’re spending money you already have. If you use it to take out cash, for example, this is free whereas if you use a credit card to withdraw cash you’ll be hit with high interest fees.

Both cards have their uses and using a combination of debit and credit cards is usually the most efficient way of managing your money when paying for things.

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