The Difference Between Credit and Debit and Cash

August 25, 2023 | By Ohio Credit Union League

A hip young man weighs his options: credit and debit and cash

What is the real difference between credit and debit and cash? When should you use one over another? While they’re equally convenient these days (with the prevalence of mobile pay options), each has many advantages and disadvantages for your spending needs. This week’s blog post comes from the Ohio Credit Union League and explores the specifics in depth.

When should I use a credit card?

Credit cards can be a great option for large or recurring purchases if used responsibly. Here are some situations when you should consider using your credit card:

Large Purchases: Many credit cards offer extended warranties and purchase protection, which can be beneficial when making expensive purchases.
Recurring Purchases: If you have recurring bills, such as utilities, childcare, or subscriptions, a credit card can make it easy to set up automatic payments. This can help you stay on top of your bills, avoid late fees, and earn additional cashback rewards.
Rewards: Many credit card programs offer rewards such as cash back, airline miles, or points that can be redeemed for merchandise or travel. If you pay off your balance in full each month, you can take advantage of these rewards without accruing interest charges.
Credit Building: Using a credit card responsibly and making on-time payments can help you build your credit score over time. This can be beneficial when applying for loans or credit in the future. However, it’s important to use credit cards responsibly and only charge what you can afford to pay off in full each month. Carrying a balance and accruing interest charges can quickly negate any rewards or benefits you may have received. So, it’s important to have a plan for paying off your credit card balance and to use your credit card wisely to avoid going into debt.

When should I use a debit card?

Debit cards allow you to have the convenience of plastic without the risk of going into debt. Since you are using money from your checking account, you can only spend what you have available, making it a great budgeting tool. Additionally, debit cards offer some level of protection against fraud and theft. If your card is lost or stolen, you can report it immediately to your credit union, and they will cancel the card and issue you a new one. However, one of the downsides of using a debit card is that they typically do not offer the same level of rewards and perks as credit cards.

Furthermore, debit cards may not provide the same level of purchase protection as credit cards. Credit cards offer additional consumer protections such as extended warranties, purchase protection, and price protection that may not be available with a debit card.

When should I use cash?

Cash is still the best option for small transactions. It is also helpful when shopping at places that don’t accept debit or credit cards. Additionally, using cash can help you stick to your budget, as it provides a physical representation of how much money you have left.

In fact, some gas stations charge less per gallon when you pay with cash. You can typically see up to 10 cents off a gallon, which may not seem like a lot, but with the increase in gas prices, it can add up. Cash is also beneficial to people who have trouble sticking to a budget. By carrying cash, you will not be tempted to make impulse purchases and overspend. Another great reason to carry cash is to support small businesses. Some small businesses, like food trucks, may only accept cash, or they might offer discounts for paying with cash.

While there are many benefits to cash, there are also some disadvantages. Cash offers no purchase protection, and there is no paper trail left behind for proof of purchases. By not having a paper trail of your cash, you run the risk of not getting that money back if your wallet gets lost or stolen.