Editorial Policy

Debit vs. credit: What's best for holiday shopping?

Erica Sandberg

November 23, 2013

QDear Erica,

I'm getting ready to shop for Christmas and would like your feedback. I have a Citibank Visa with rewards and a debit card from my bank with no rewards. Which card should I use the most? Also, I'm nervous using my debit card online, but maybe I'm being gun shy because I had my numbers stolen once. Don't worry, Erica, I have enough in my bank accounts to pay everything this year. I just want to make sure I'm doing it right. — Genni

AHi Genni,

You're smart to ask about the best way to pay for things that run outside of your normal shopping habits. There's so much to consider when using all forms of plastic and confusion is natural. From what I can tell, there seem to be four predominant elements to your question:

  1. How to stay out of debt while charging things to your credit card
  2. How to capitalize on your charging experience
  3. How to shop online safely
  4. When credit or debit is better

The first is a no-brainer: Charge only what you can afford to pay off in full. You say you have enough money in your checking and savings accounts to cover all holiday expenses, which is the perfect scenario. Now write a list of all the goods and services you'll be adding to your credit card this holiday season. Monitor your charges so you don't mistakenly (or impulsively) overdo it. As soon as the bill arrives, send the entire balance. Avoid the urge to divide it up into pieces and pay it over several months, since interest will be added if you carry a balance past the due date. If you've already saved up enough money in advance for gifts, there's no reason to pay more if you don't have to.Ask Erica

The second point concerns getting the most from your Citi card. As with all rewards cards, there is a way not to just avoid finance charges, but to earn money. With every charge, you build up points transferable for cash or stuff. If you pay off everything you spend before interest charges are added, you come out ahead. I strongly suggest that you visit your credit issuer's website today to see if it is increasing benefits this time of year. Many are. For example, I found that for a limited time, Citi is partnering with Wal-Mart. If you shop there on Tuesdays, you'll get a $10 e-gift card for each $100 you charge.

Now, on to your online shopping worries. I completely understand your reticence when entering credit or debit card numbers into a website. It feels scary. So stick with major online retailers that are highly secure and you should be fine. Other tips:

  • The website should have “https” in the address as soon as you begin the payment process.
  • Don't click through emails that appear to be from retailers. They might lead you to copy-cat scam sites. Instead, type in the URL for the retailer on your own.
  • Don't store your credit card data on retail sites. Yes, it's convenient, but it's better not to have it there when not necessary.

It's best to use a credit card as opposed to a debit card when shopping online. In the event that fraud does occur, you have greater consumer protections. Plus, your threshold for loss is lower with a credit card — banks can hold you responsible for only $50 of fraudulent charges on a credit card and up to $500 with debit. That said, banks' policies may be more lenient. I've had my debit card compromised (some jerk got hold of my numbers) and my bank immediately refunded the money that was stolen. Do keep in mind, though, that having your debit details swiped can be far more inconvenient as the thief will have direct access to everything in your bank account. That can leave you without enough to cover bills while the bank straightens things out.

Finally, let's look at when you should choose credit over debit. There are times when a credit card is the clear winner for payments, and that's when you're buying items that need to be shipped or could get damaged along the way. If they never arrive, arrive broken or aren't what you were promised, and the merchant isn't cooperating with a refund, you can dispute the charge with the credit card company. This kind of added protection can give valuable peace of mind. If you'll be traveling this year, you'll also likely need a credit card to pay for a rental car and hotel. If you try to use your debit card for these things, the company can put a hold on more funds than you may be willing to lock up.

On the other hand, debit may be your card of choice when buying little things, such as greeting cards. I don't see much of a reason to charge them, unless you want to ensure maximum point accumulation — or unless you want to have every seasonal expense on a single account, which can make tracking easier.

Got a question for Erica? Send her an email.