Should you use debit cards or credit cards when paying online?

This question bothers a lot of people. Especially when credit cards become more expensive and harder to get, and when people consider them being “the source of all evil” with regards to their personal finances and debt crisis.

So, what should you prefer when paying online?

The answer is credit cards.

Debit cards have some benefits: they allow strict control over your cashflow, very limited options when it comes to buying stuff you cannot afford, and they’re very effective against impulsive shopping of buying when you don’t have money.

But, the credit card benefits are much more important, when it comes to on-line shopping, because the advantage is better protection for you in cases of fraud.

The magic words are dispute resolution. If you dispute a charge on debit card – the money has left your account already, and if the dispute was accepted – you’ll get it back. If. Eventually. In the mean time – you’re overdraft/missing $$$.

For credit cards, you can catch a fraud action before the money actually leaves your pocket and dispute it then. In this case the charge is set aside, and you will only be required to actually pay if the dispute is rejected. I.e.: The money stays in your pocket, until the business proves that the charge is legit.

In both cases, if the dispute is justified (i.e.: there was indeed a fraud) neither you nor the bank will lose money at the bottom line, it’s just who’s got the money during the dispute resolution process (which may be lengthy) that matters.

If you’re afraid that using credit cards will cause financial troubles for you – then you should read one of my first posts on this blog, that explains how to use credit cards correctly.

This issue bothers a lot of people, and my answer on this question has become very popular on the Money.StackExchange personal finances Q&A community site.

Hope it helps you as well,

Your Little Advisor

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2 Responses to Should you use debit cards or credit cards when paying online?

  1. JoeTaxpayer says:

    This is a hotly contested issue.
    Allow me add one more vote/reason for the credit card. Extended warranty. Many cards have a feature that will double your warranty up to a year beyond the manufacturer’s time. On something like a laptop computer, this is probably worth about 10% of the purchase price. They also cover breakage. You smash your iPad? Apple’s not going to cover this (why should they?) but my card has breakage/theft coverage.

    For those who are trying to live to a tight budget, it’s very simple – when you have the full price of your desired purchase set aside, you can buy the item. If this discipline is beyond you, stick with cash/debit.

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