It’s easy to apply for credit cards, but it’s harder to know when to use them. When is it best to use a credit card, and when should you use debit? Should you use different types of credit cards for different types of purchases? What about credit card debt — should you stop using credit just because you’re carrying a balance on a card?
The answer? It depends. We’ve got five situations in which you should use credit for your purchases, and three scenarios in which debit is best.
Use a cash back rewards card for everyday purchases
Cash back rewards cards are great everyday credit cards. Some cash back cards offer a flat cash back rate on every purchase, while others offer a higher cash back percentage for certain types of purchases, such as groceries or restaurants. You can decide whether you want a single flat cash back rewards card, or whether you want to carry multiple cash back rewards cards and use one for grocery shopping, one for gas, and so on.
Use a cash back rewards card for automatic bill payments
Don’t forget about earning cash back rewards on your monthly bills. Many utility companies let you pay by credit card, and you can set up automatic bill pay online so you never have to worry about a late payment. You’ll earn rewards without having to think about it!
Use a travel rewards card for flights, hotels, and travel purchases
Travel rewards credit cards can save you a lot of money on flights and hotels — and they come with other unique benefits as well. Airline credit cards often give you points/miles for every purchase you make with the airline, as well as benefits like free checked bags or a free companion flight. Hotel credit cards might offer room upgrades and other perks. There are also a handful of travel credit cards that aren’t tied to a specific airline or hotel chain; these cards let you earn points that can be redeemed for multiple types of travel purchases, as well as benefits such as travel insurance and airport lounge access.
You’ll earn the biggest rewards from travel rewards cards when you use them for travel-related spending — but since travel rewards cards often offer at least one point on all purchases, some people use travel rewards cards for all of their spending. Others try to maximize their rewards by using their travel rewards card for travel purchases and their cash back rewards cards for non-travel purchases.
Use a credit card with a 0% intro APR to fund a large purchase
Zero percent interest credit cards can be extremely valuable tools when making large purchases. Using one of these cards means that you won’t get charged interest during the card’s intro period — which is usually between 6 and 18 months, depending on the card. This is great if you’re planning to fund a large purchase, like a vacation. You can buy what you need now, and have a designated amount of time in which to pay it off without getting charged interest.
Many 0% intro APR cards are balance transfer cards. They’re designed to help people pay down their credit card debt; transfer another card’s balance to the 0% intro APR card, and you’ll be able to pay it off interest-free. However, you don’t have to transfer a balance onto a balance transfer card. You can apply for the card and use it to book a cruise, buy holiday gifts, or plan a trip to see family. Just make sure you pay everything off before the 0% intro APR period ends!
Use a secured credit card to build your credit
If you’re working on building your credit and don’t qualify for a standard credit card, consider getting a secured credit card. These credit cards require a refundable security deposit, but they are one of the best ways to get a line of credit and start improving your credit score.
Once you have your secured credit card, use it to make small everyday purchases that you can pay off in full. Don’t buy anything you can’t afford, and don’t use your secured credit card as a way to give yourself a short-term loan. Instead, focus on paying your card off in full, on time, every month — and watch your credit score grow.
Avoid using your credit card at ATMs
Here’s a good reason to keep a debit card in your wallet: ATMs. When you need cash fast, you don’t want to pull out a credit card — you’ll get charged cash advance fees, and you’ll usually have to pay interest on that cash right away (instead of getting the typical credit grace period). Plus, the interest on cash advances is often higher than the interest on other types of credit card purchases.
Credit cards weren’t designed to be methods of accessing cash, which is why you’ll pay highly for the privilege. Avoid the extra costs by using a debit card at ATMs instead.
Avoid using your credit card if you can’t pay your balance off in full
Credit card debt is no joke, and if you’re not careful, you could rack up a balance that might take months to pay off. While everyone carries a balance on their credit cards now and then, it’s best if you’re able to pay every credit card statement in full. That way, you won’t get charged interest on a revolving balance.
If you do find yourself in a situation where you are carrying a revolving balance on your credit card, it’s a good idea to stop spending on that card until you’ve paid that balance off. If you keep using that card to make purchases, you run the risk of growing your balance to an amount that feels overwhelming.
Avoid using your credit card if you’re already in credit card debt
Once your credit card balance has grown to the point that it’s become credit card debt, it’s time to stop using credit. Start putting all of your everyday purchases, bills, and travel expenses on your debit card, and create a budget that’ll help you pay your credit card debt off. Applying for a balance transfer card could help you reduce the amount of interest you’re paying on your credit card debt, but once you’ve transferred your balances to the card, that’s it — no more credit until you’re debt-free.