Editor’s note: This is a recurring post, regularly updated with new information.

On the outside, credit cards and debit cards look a lot alike: Both have 16 digits, expiration dates and security codes on the back.

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In reality, credit cards and debit cards are not the same, and there’s often debate in the financial world over which type of plastic is best for consumer interests. Some financial pros are firmly in the pro-debit-card( or cash) clique, but here at TPG, we believe that credit cards are a much better choice for your spending.

Related: Reasons why you shouldn’t use your debit card

In this guide, we’ll break down how debit and credit cards wreak and the three cause why I think it’s better to keep your debit card in your pocketbook and remunerate with a credit card instead.

In This Post

Debit placard vs. credit card: The machinists ( Photo by Atit Phetmuangtong/ EyeEm/ Getty Images)

Debit cards are confined to your bank account. When “youre using” your debit card to make a charge, the funds are withdrawn right away( or within a few dates) from your chronicle. If you try to use your debit card for a acquisition that costs more money than “youve had” lodged, your bank will generally decline the transaction.

Your credit cards , on the other hand, runs like a portable, resilient loan. You can borrow money( up to your credit limit ), wage it off and acquire again. You can repeat this process repeatedly as long as your detail is open and in good standing.

As you use your credit card through a billing cycle, your costs are tallied up on your monthly explanation. It’s up to you whether to pay off your part poise by the due date( strongly recommended) or to make at least the minimum pay toward the amount you owe.

Related: TPG’s 10 commandments for credit cards

People tend to avoid credit cards since you can get into serious financial trouble if you don’t manage your accounting well, overspend and allow yourself to get into debt, with expensive interest rewards tacked on regularly. Approval poster obligation should indeed be avoided, but you’ll miss out on great benefits if you swear off credit cards altogether.

Here are the three reasonableness a credit card is a smarter choice than a debit card.

Credit cards offer better protection

Putting points and miles aside for a moment( just for a moment ), the best perk that comes from credit cards is the protection that those bits of plastic( or metal) proposal. When “youre using” a credit cards for your spending, it can protect you in three ways.

Credit posters protect yourself from indebtednes for fraudulent events . If you lose a card or it’s stolen and someone else starts charging on it, the federal government has your back.

The Fair Credit Billing Act( FCBA ) limits your liability for sham events on your card to just $50( and most major placard issuers waive even this responsibility as such matters of programme ). Simply report the unauthorized transaction within 60 periods of your statement date and you’re covered.

Debit posters are protected from fraudulent business, more, thanks to the Electronic Store Transfer Act( EFTA ). However, your liability shoots up to $ 500 if you don’t catch and report their own problems within two business dates. Too, the money in your bank account can be tied up while the bank analyses the impostor, which could be a serious problem if you have statements coming due in the meantime.

Another credit card protection grows if there’s a problem with the goods or services you bought: Your card issuer might help you get your money back. This care is, once again, thanks to the FCBA. Imagine you told a product but never received it. Of direction, you should try to work things out with the shopkeeper firstly. But if the broker won’t help you( it happens ), you could disagree the charge with your card issuer.

If you’d paid for the same purchase with a debit card, your bank isn’t legally is obliged to make or probe legal disputes. The only type of dispute banks have to investigate under the EFTA is fraudulent commissions on your debit card.

Your credit card may also come with added benefits, including purchase protection, extended guaranties, and price protection. These benefits might help you when an piece you are buying separates( or is lost) or when the price of an component you bought abruptly puts. Not every credit cards offers these great benefits, but they’re practically unheard of with debit cards.

Credit-building possible Someone checking their credit score on a smart phone( Photo by cnythzl/ Getty Images)

I prefer credit cards to debit card for another important reason: My posters have helped me build a healthy approval sketch over the years. My debit card doesn’t help me improve my credit reports or ratings whatsoever.

Credit placard issuers generally report chronicles to all three major credit unit — Equifax, TransUnion and Experian. As long as you finagle your notes wisely( pay them on time and in full every month ), credit cards can help you improve solid recognition composes over epoch. The older your credit cards become with a positive payment record, the more your approval compose will benefit.

Related: 6 things to do to improve your recognition in 2021

Rewards-earning possible Use your credit honors to book splendid hotels.( Photo courtesy of the JW Marriott Gold coast Resort)

Finally, I love exerting my credit cards for buys because of the remunerations they furnish. In the past six months alone, I payed and redeemed roughly $3,500 worth of free pas — all courtesy of my rewards credit cards.

Best of all, I didn’t have to invest any extra money to earn these rewards. I exploited my credit card to pay for buys I needed to make anyway. TPG’s beginner’s guide to earning spots and miles is a great place to start if you want to learn more about credit card rewards.

If I had utilized my debit card to cover my spending instead, I would have missed out on this great benefit. In general, exploiting a debit card for acquisitions doesn’t give you anything in return.

Sole direction

When you use credit cards responsibly, they’re a smarter spending alternative than a debit card — with the major caveat of by-passing credit card debt. Otherwise, the expensive interest rewards you offer will wipe out the value of any compensations you earn.

Using a debit card( or money) won’t stop you from overspending, even though it is might restraint the damage. But, it is possible to avoid overspending with your credit cards as well.

If you’re worried about charging more than you can afford to pay off on a credit card, find a handy room to move your expend. You can use a money management app, a memorandum on your telephone or even old-fashioned pen and paper to set spending points and stick with them.

As soon as you trust yourself to use credit cards responsibly, it’s time to put away your debit card and start reaping some rewards.

Additional reporting by Stella Shon

Featured photo by Gary Friedman for Los Angeles Times via Getty Images

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