When to Use a Debit Vs. Credit Card

Whenever you prepare to make a purchase, you face a decision: debit or credit? They may look alike, but in some cases, credit is the best choice, while in others debit is the more appropriate option. You may find yourself wondering about the difference between these cards, and how do you know when to use credit and when to use debit?


Credit card transactions are processed by a card issuing company. They allow you to borrow a limited amount from a card provider to make purchases, typically involving a transaction fee. Money may or may not be deducted from your bank account immediately, depending on the retailer. One notable benefit of credit cards is that they offer more anti-fraud protection than debit cards. As long as you report the theft or fraud promptly, card users only have up to $50 in liability. Some credit card transactions may require a signature.


When you complete a transaction with a debit card, you are allowed to spend money that you have already deposited in an account with your card provider. Debit cards, like Bank of the James’ Visa debit card, are convenient, safe, and smart, and easier than writing a check or handling cash. Money is immediately deducted from your bank account. If there are insufficient funds in your account, your bank may either decline the transaction or charge you an overdraft fee. Debit cards are the most similar to using cash without actually having bills in your wallet. Sometimes debit card transactions require use of a PIN, and you can use debit cards to get cash from ATMs.


In many cases, there are benefits to using your credit card as long as you manage your finances wisely. They are typically the safest option, with anti-fraud protection and generous liability policies. Some situations in which credit cards are most appropriate are:

Recurring purchases

Recurring transactions such as gym memberships are a good time to use a credit card. This way if there are problems with your payment, you can resolve issues without actually being out any money.

Deposit required

If you are making a purchase that requires a deposit, when you use a credit card, you might never actually have to part with your money since the withdrawal doesn’t occur immediately.

Delivery later purchases

If you have purchased an item but won’t be picking it up right away, credit cards are a good option. Similar to recurring purchases, if you find an issue with a delivery your purchase problems can be resolved before you’ve actually exchanged money.

Large purchases

Many credit card providers offer warranties just for using the card. Sometimes these warranties extend beyond the manufacturer’s protection, giving you extra coverage. This makes credit cards a great choice for purchases such as electronics and appliances.


There are several reasons to consider using a credit card when travelling. First, anti-fraud protection becomes valuable when you are abroad and at higher risk for identity theft. Second, many hotels and rental companies offer discounts when you use credit. Last, you might need a credit card to book a hotel. In many cases, if you book with debit, a hold may be placed on your account, creating a huge inconvenience during your travel.

Rewards or perks

Many credit cards come with rewards or perks for use. Bank of the James offers points for every purchase with a card that you can turn into merchandise or travel.

Repairing or building credit

If you need to repair your credit after bankruptcy or foreclosure, making small purchases with a credit card and paying them off promptly begins to build or rebuild your credit score.


While there are many situations that are well-suited for credit cards, debit cards are more appropriate in some cases. Use your debit card when:

Time is an issue

If you are making a transaction when the receiving party needs the money right away, use of debit card is the best choice.

You’re on a budget

Since the account immediately removes funds with debit card purchases, you can better avoid overspending. If you are trying to remain within a budget, debit will not allow you to spend any greater than the amount in your bank account. So using a debit card helps maintain  your budget limits.

You struggle to live within your means

The money in your bank account limits  what you can spend with a debit card. Unlike a credit card, you cannot charge money to be paid off later. If you tend to spend more than you actually have in the bank, debit cards are probably the wiser option for you.

The similarities between credit and debit cards end with their appearance. Knowing when to use credit and when to use debit is key to effective money management.

Keep your budget and financial goals organized with our budget planner template